TechnologyOne rallies on strong top and bottom line FY22 growth

By Market Index
Tue 22 Nov 22, 11:59am (AEST)
Fire power
Source: Unsplash

Key Points

  • TechnologyOne's net profit after tax of $88.8m was up 22% on the previous period
  • The company is on track to surpass its target of $500m-plus ARR by FY26
  • Morgan Stanley believes the risk/reward ratio is less compelling in the current economic backdrop

Brisbane-based TechnologyOne (ASX: TNE) was up 5.26% at the open after the nation's largest software as a service (SaaS) posted (SaaS) annual recurring revenue (ARR) for the year to September 30 of $274.2m, up 43% and a beat against Goldman Sachs forecast of $273m.

Included within the company’s full year FY22, which had little to dislike, was a net profit after tax (NPAT) of $88.8m, up 22% on the previous period and marked its 13th consecutive year of rises.

What also made shareholders smile this morning was the S&P/ASX200 company’s special dividend of 2 cents per share (CPS) in addition to a final dividend of 10.82 CPS.

Management reminded investors the company has significant firepower on balance sheet to invest in growth and opportunities that may arise.

SaaS growth

CEO Ed Chung reaffirmed that with the SaaS business growing faster than expected, the company is on track to surpass its target of $500m-plus ARR by FY26.

“During the year, we completed our fourth generation global SaaS ERP, CiA, having re-engineered our entire ERP code base using SaaS technology,” Chung noted.

“We have showcased exciting new products and solutions that underpins our ability to continue to double in size every 5 years.”

Management notes with over 800 large scale enterprise organisations, leveraging the company’s fourth generation SaaS ERP, CiA - for mission critical activities for them and their customers - TechnologyOne is the largest single instance SaaS ERP offering in Australia.

Local govt & higher education

Having closed 20 major deals in FY22 with $63.9m in total contract value the company now has more than 320 council customers in APAC.

In the Higher Education sector, the company closed 10 major deals in FY22 worth $47m in total contract value, cementing its position as the leading provider to the APAC Higher Education sector.

An end to legacy licences

During the year, the company also completed a five-year plan to reduce on-premise legacy licence fees from a high of circa $70m to zero, while aggressively growing its SaaS recurring revenue business.

“This transition was extremely complex as we re-engineered all parts of our business including our products, our structure, our policies, processes and disciplines,” management noted.

Full year FY22 highlights

  • Total annual recurring revenue is $320.7m, up 25%.

  • Full-year dividend increased to 17.02 CPS, up 22%.

  • UK business grew annual recurring revenue by 95% to $17.5m.

  • R&D investment of $92.2m before capitalisation, up 19.6%.

  • Cash Flow Generation of $77.2m, up 21%.

  • Total revenue of $369.4m, up 18%.

  • Profit before tax of $112.3m, up 15%.

  • Net assets of $239.1m, up 26%.

  • Cash and cash equivalents of $175.9m, up 22%.

What brokers think

TechnologyOne’s share price is down -4.41% over 12 months but has been bouncing higher since early October.

Consensus is Moderate Buy.

Based on Morningstar’s fair value of $11.50 the stock appears to be overvalued.

Late October Morgan Stanley initiated coverage with an Equalweight rating and price target of $11.50 but believes the risk/reward ratio is less compelling in the current economic backdrop.

TechnologyOne share price over 12 months.


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Market Index

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