TechnologyOne stands out as a low risk, reliable performer with a proven track record and plenty of growth ahead in today's beaten-down technology sector on the ASX.
-TechnologyOne recently booked 13th year of record half-yearly profits
-SaaS revenue jumped 44% in the first half of FY22
-Profit margins expected to expand with further customer wins
-Analysts overwhelmingly back management's optimism about future growth
With 97% of total revenue now coming from Software as a Service (SaaS) and continuing businesses, TechnologyOne ((TNE)) say its transformation is "complete" with strong sales having underpinned another record first half profit.
Analysts at stockbrokers share company management's optimism and are upbeat on the future, with its shares having outperformed key competitors during a time when technology stocks on the ASX are heavily out-of-favour.
TechnologyOne provides enterprise resource planning (ERP) software. Competition in the sector is high, with main competitors including large multinationals such as Oracle, SAP and Workday.
Nevertheless, TechnologyOne enjoyed a jump in fees for the half year ended
Profit after tax rose 18% to
TechnologyOne CEO,
Its purchase of higher education software provider Scientia will drive growth in higher education both in the
The company attracted nineteen large scale enterprise customers in the
On the negative side, group profit before tax (PBT) margin fell around -1% to 25%, largely driven by the purchase of Scientia, which reported a 6% PBT margin compared to
The company expects its key margins to remain flat in FY22, before expanding in coming years.
TechnologyOne shares are up 24.5% over the year to
This is not to suggest the shares have been immune from the broader sector fall-out. TechnologyOne shares reached an all-time high in November last year, at
More gains seen for TechnologyOne
Morgans too has an 'Add' on the stock and says its SaaS transformation has been seamless.
Typically, points out the broker, a transformation of this nature comes with a lot of pain but TechnologyOne is believed to have navigated the transition "incredibly well".
With revenue growth expected to accelerate earning per share (EPS) growth, Morgans has a target price on the stock of
Goldman Sachs too has lifted FY22-24 revenue estimates by 3 to 5%. However, its price/earnings (P/E) multiple has reduced to 23.5x (versus 25.0x prior), which reduces the price target to
This hasn't stopped Goldman Sachs from reiterating its 'Buy' recommendation. The broker highlights the company has a sticky customer base "with high recurring revenue and expanding margins (post FY22) providing visibility into medium-term earnings growth.
With a potentially challenging macro backdrop on the horizon, the broker sees TechnologyOne offering a resilient earnings profile underpinned by low customer churn, mission critical software and defensive public sector end markets.
Wilsons notes the first-half result highlights both the non-discretionary and a-cyclical nature of the business.
Wilsons retains an overweight rating on the stock, though has lowered FY22-FY24 forecasts by -4% to -5%, reflecting higher costs including depreciation following its acquisition of Scientia. As a result, its target price has reduced by -8% to
Thus, Shaw has reiterated its Buy rating with a price target of
This makes Macquarie a stand-out with only a Neutral call on the stock. Macquarie notes the key downside risk to its target price of
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