From Minerals to Tech: Australia’s Export Landscape and the Best Stocks to Benefit

This article explores Australia’s current export landscape and identifies the sectors poised for scalable growth over the next five years. We’ll also highlight three stocks well-positioned to benefit from these trends. Australia’s Trade Balance Holds Steady Amid Waning Export Growth Australia’s export landscape presents a complex scenario. While our country has consistently achieved trade surpluses, there has been a noticeable deceleration in export growth. In June, Australia reported a trade surplus of $5.589 billion, continuing a pattern primarily driven by natural resource exports, including gas, metal ores, and agricultural products. However, export growth has slowed, with the rate dropping from 5.3% in 2023 to 2.1% by mid-2024, largely due to waning demand from major trading partners like China. Despite these challenges, robust domestic demand has provided some economic stability, though rising imports have slightly offset the positive impact of strong exports on GDP growth. Concerns Over Australia’s Trade Surplus as Exports to China Decline and Costs Rise Australia’s trade surpluses remain heavily dependent on natural resources and commodities, with sustained demand from key Asian markets, particularly China, Japan, South Korea, and India. However, recent declines in exports to China, coupled with global trade challenges such as rising shipping costs and geopolitical tensions, raise concerns about the future performance of exports. While our country is expected to maintain its trade surpluses, projected to reach $8.2 billion by late 2024, the outlook remains cautious amid potential headwinds from weakening demand and global economic uncertainties. The outlook for Australia’s mineral exports, a cornerstone of our economy, is increasingly uncertain. Export earnings are forecasted to decline from a record $466 billion in 2022-23 to $366 billion by 2024-25, driven by lower prices for critical minerals such as lithium and reduced demand, particularly from major markets like China. Global economic conditions, including slower growth in key economies, further exacerbate this slowdown. Although investments in low-emission technologies support long-term demand for critical minerals, the short-term outlook remains challenging. Australia’s Technology Exports and Emerging Opportunities However, one export sector that might be overlooked is Australia’s technology and software industry, which is set for significant growth by 2025. This sector, driven by robust IT spending, digital business maturation, and emerging opportunities in quantum technology and the Southeast Asian digital economy, is poised to thrive. IT spending in Australia is expected to exceed $133 billion in 2024, supported by government funding, trade agreements, and the adoption of innovative solutions for urban development and infrastructure. Collaborative R&D and cross-border partnerships will be key to unlocking the full potential of Australia’s technology and software exports. Three Stocks You Might Consider Capturing This Growth Potential Xero Limited (ASX: XRO) – Up 27% year-to-date Xero (ASX: XRO) has had a robust year, with shares up 27% year-to-date, driven by a 22% increase in FY24 revenue to $1.7 billion. This growth reflects strong ARPU expansion and subscriber gains across key markets. The company’s strategic issuance of US$925 million in senior unsecured convertible notes due 2031 has been well-received by investors, offering attractive refinancing terms and additional capital for future growth. The notes, which carry a 1.625% annual interest rate and a 30% conversion premium, are part of a broader strategy to enhance financial flexibility while minimising shareholder dilution. Xero has shown strong profitability with a 75% increase in adjusted EBITDA to $526.5 million, and a significant improvement in free cash flow margin to 20.0%. CEO Sukhinder Singh Cassidy emphasised Xero’s strong strategy and market position, especially in Australia, New Zealand, the UK, and North America. As Xero continues to invest in innovation and partnerships, the company is well-positioned to take advantage of global market opportunities and achieve ongoing growth. We see the potential for a good entry point by employing a dollar-cost-averaging approach on Xero. Conservatively, we expect a pullback and re-test of the $138 - $140/share level, possibly even the $135/share level, before a rally above $150 per share. CAR Group Limited (ASX: CAR) – Up +19% year-to-date We are convinced that CAR Group (ASX: CAR) remains an excellent long-term investment, driven by its strong financial performance, strategic international expansion, and focus on technological innovation. The company’s initiatives, including its growing global presence and commitment to enhancing digital vehicle transactions, further bolster its potential for future growth. With a positive outlook and strong management, we see CAR Group as well-positioned to deliver solid returns and significant growth going forward. The company has delivered an impressive set of results for FY24, showcasing robust double-digit growth in revenue and earnings across all key markets. CAR Group’s diversified global business model and innovative product offerings have proven highly resilient, driving a 17% increase in pro forma revenue to $1,099 million and a corresponding 17% rise in pro forma EBITDA to $581 million. The adjusted results also reflect strong performance, with revenue and EBITDA up 41% and 37%, respectively, driven by the successful integration of acquisitions such as Trader Interactive and webmotors. The 50% franked final dividend of 38.5 cents per share, up 18% on the prior corresponding period, further highlights CAR Group’s solid cash flow generation and commitment to returning value to shareholders. In terms of expansion, CAR Group demonstrated strength across its markets. In Australia, the company achieved 13% growth in revenue and adjusted earnings, supported by strong demand for used cars and the increasing adoption of higher-value products. North America and Latin America delivered standout performances, with pro forma revenue growth of 16% and 31%, respectively, reflecting the success of dynamic pricing and the expansion of media advertising technology. Asia also saw a healthy 17% increase in revenue, driven by the growing penetration of Guarantee Inspection listings and the rapid expansion of Encar Home. Looking ahead, CAR Group remains optimistic about its growth trajectory, expecting continued revenue and EBITDA growth in FY25 across all regions, with margins anticipated to remain strong. Technically, CAR has broken through a key resistance level at around $37 per share after trading sideways for just over six months. This could indicate a potential rally, possibly reaching the $50 per share level. Year-to-date, CAR shares have appreciated by more than 18%. NUIX Limited (ASX: NXL) - Up +150% year-to-date Nuix has delivered an impressive year-to-date performance, with its stock up 150%, reflecting strong investor confidence in its strategic execution and growth potential. As a leading provider of investigative analytics and intelligence software, Nuix plays a crucial role in enabling organizations to navigate the complexities of the digital world. The company’s ability to process and review vast amounts of data with forensic accuracy has positioned it as a key player in the industry, serving a diverse customer base that values actionable insights. The company’s recent FY24 earnings report underscores its robust financial health and operational excellence. Nuix exceeded its strategic objectives, with Annualised Contract Value (ACV) growing by 14% to $211.5 million and revenue surging by 20.9% to $220.6 million. This growth was driven by strong performance across its customer base, particularly in North America, and the successful rollout of new product offerings like Nuix Neo. The substantial increase in Net Dollar Retention and a marked reduction in customer churn further highlight the company’s ability to retain and expand its customer relationships, which is a key indicator of long-term sustainability. We like Nuix for its strong financial discipline, evidenced by a 38.7% increase in underlying EBITDA and a significant turnaround in net profit. The company’s positive cash flow performance, coupled with a debt-free balance sheet, provides a solid foundation for future growth. The successful launch and expansion of Nuix Neo, which has shown remarkable ACV growth, signals a promising future as Nuix continues to innovate and enhance its product offerings. With strategic targets in place for FY25, including continued ACV growth and positive cash flow, we see Nuix as well-positioned to capitalize on its current momentum. Technically, Nuix shares might be in overbought territory at around $4.85 per share. A prudent approach to gaining exposure to Nuix and avoiding purchasing its shares at a high premium is to employ a dollar-cost averaging strategy. Nuix has achieved a strong breakout of the near-term resistance level in the $3.50-$3.60 range. There could be a pullback to this level as traders take profits from the recent rally, which could present an interesting opportunity to build a position in NXL.