TechnologyOne delivers 13th year of record profit, expects 10-15% growth in FY22
TechnologyOne shares struggle for upside despite solid growth and an encouraging FY22 guidance
Source: iStock
Mentioned
KEY POINTS
- TechnologyOne delivers its 13th year of record profit
- Earnings growth was supported by an increase in large-scale enterprise SaaS customers
- Management reaffirm ability to pass on higher prices, customers from resilient sectors and tech cost savings
TechnologyOne (ASX: TNE) has delivered its 13th year of record profit underpinned by strong demand for enterprise customers and digitisation tailwinds.
The upbeat earnings result struggled to inspire the market, with TechnologyOne shares down -4.2% in early trade.
Financials at a glance
For the first-half ended 31 March 2022:
Revenue of $172m, up 19%
SaaS annual recurring revenue of $225.1, up 44%
Net profit of $33.2m, up 18%
Expenses of $129.9m, up 21%
R&D expenditure of $41.5m, up 20%
Cash and cash equivalents of $116.4m, up 16%
Interim dividend of 4.2 cents per share, up 10%
SaaS transformation complete
TechnologyOne’s SaaS and continuing business operations reflected more than 97% of first-half revenues as the business shifts away from the legacy licence model.
Earnings growth was supported by an increase in large-scale enterprise SaaS customers, up 24% to 714, the highest number to date for any comparable period.
Expenses rose 21% in-line with expectations. Though, R&D investment was described as “significant” and potentially above market expectations. The investments will go towards expanding the functionality and capabilities of the company’s global SaaS Enterprise Resource Planning (ERP) solution.
Eyes on cash flow
TechnologyOne generated $1.6m in cash flow in the first-half.
“Traditionally, cash flow generation for TechnologyOne is weighted to the second half, aligned with customer payment anniversary dates, resulting in negative cash flow in the first half,” said CEO Edward Chung .
“Cash flow generation will be strong over the full year, and we expect it to represent approximately 85% of net profit after tax. Cash flow generation will progressively align to NPAT by FY24.”
Resilience
TechnologyOne is expected to deliver FY22 net profit growth between 10-15%.
Chung turned his attention to recent concerns about deteriorating economic conditions, high inflation and rising interest rates, pointing out that:
Customers in sectors such as government and higher education are resilient
Customers turn to software to achieve greater cost efficiencies
Subscription revenue contracts pass on inflation
TechnologyOne 12-month price chart
Broker views
Bell Potter was Buy rated on TechnologyOne with a $12.50 target price in May.
The target price was downgraded by -11% to reflect market movements and the general climate for technology stocks.
TechnologyOne handily beat Bell Potter forecasts of 38% SaaS annual recurring revenue growth.
