TechnologyOne’s SaaS Transformation ‘Complete’

Australia | Jun 08 2022

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

By Nicki Bourlioufas

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 31 March 2022 and similar growth is expected in the second half.

Profit after tax rose 18% to $33.2m, its 13th year of record first half profit, underpinned by strong demand for its TechnologyOne global SaaS ERP solution. SaaS annual recurring revenue (ARR) jumped 44% to $225.1m.

TechnologyOne CEO, Edward Chung said the strong half year result validates the strength of the company’s SaaS strategy.

Its purchase of higher education software provider Scientia will drive growth in higher education both in the UK and Australia in addition to strong organic growth.

The company attracted nineteen large scale enterprise customers in the UK, Australia and NZ in the first half. Chung said profit margins will expand as the company wins more SaaS customers globally.

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 Technology One’s 26%.

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 6 June 2022, compared to a drop of -13.1% for the Nasdaq Composite Index and falls in the prices of key competitors Oracle (-13.1%), SAP, down -18%, and Workday, down -29%, amidst rising bond yields and interest rates.

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 $13.50.

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