14-Jan-2021: $9.50 is my 12 months PT for TNE (so by January 2022), however I believe they will double their business again by the end of 2027, being seven years, and they will be trading at over $15/share at that point. Management have restated their belief (in their November 24th results announcement) that they can do it in 5 years once again, but I'm going to give them an extra two, due to COVID.

There are very few companies of higher quality than TNE. They have managed to more than double their revenue and profits every five years for the past 15 years, so they've doubled in size 3 times. Why wouldn't that be reflected in their share price. Well, it has been. Have a look at what their SP has done:

30-Nov-2005: $0.57

30-Nov-2010: $0.96

30-Nov-2015: $4.35

30-Nov-2020: $9.18

Of course, the entire IT sector including all 5 of the WAAAX stocks and the XIJ (the ASX200 IT Index) have all dropped during December and so far this month as well, and TNE has too - closing today down at $7.65, some 16.7% below that $9.18 level at the end of November. APX has dropped the most, due to downgrades, but they've all dropped due to rotation out of growth stocks and growth sectors (like IT) into value stocks and cyclicals (mining, materials, energy, the better quality retailers, etc.). I loaded up on TNE in one of my portfolios today, and I'm planning on doing some more buying (in another portfolio - my super PF) tomorrow.

They weathered a short-seller attack in July that focussed on their accounting and our own @Wini ( https://strawman.com/Wini ) (a.k.a. Luke Winchester) had already posted a great article here on some of the changes they had made - see here: https://strawman.com/blog/beware-false-profits/

I believe that the results they produced in November for their full year (FY20) - which ends on September 30 - have put those concerns well and truly to bed. 

Some FY20 highlights:

·        ROE = 44.3%;

·        ROC = 38% (both from Commsec);

·        Their underlying PBT (Profit Before Tax) increased from 27% in FY19 to 29% in FY20;

·        They expect their margins to gradually improve to 35%+ in the coming years driven by significant economies of scale;

·        They stated that they are on track to double the size of the business once again in the next 5 years;

·        They only need to keep growing at 14% p.a. to achieve that, and they managed underlying PBT growth of 13% in FY20 despite COVID-19;

·        Cash Flow Generation in FY20 of $66.4m, up +49% on FY19;

·        Cash and cash equivalents of $125.2m as at 30-Sep-2020;

·        No Debt;

·        They've posted record revenue and a record profit every single year for the past 11 consecutive years;

·        They've increased their dividend every single year for the past 8 consecutive years, and by +8% in FY20;

·        They spend at least 20% of their revenue on R&D each year to stay at #1, and in FY20 it was a $68.1m R&D investment before capitalisation, up 13% on FY19, and that was 22% of their FY20 revenue;

·        Their UK business, which they built up from scratch, has just hit breakeven (no more losses), and will be profitable this year;

·        Their Australian business has been consistently profitable for over 25 years;

·        They've already expensed all of the costs of building up that UK business (from nothing), so it too will be highly profitable in the future;

·        They don't grow via acquisition - they grow organically, and it's dependable and sustainable growth, they have the track record to prove that;

·        They are a $2.6 billion company that is in the ASX200, they are Australia's largest and most successful ERP (Enterprise Resource Planning) SaaS company, and after carving out a niche in Universities, TAFE Colleges and other education facilities plus local governments and councils, they have successfully expanded their offering to other government departments, financial services, health & community services, utilities and managed services, with more to come;

·        They were early to move to the cloud and they are now reaping the benefits of that, and so are their customers. Their customers now pay less for the same service but it costs TNE heaps less to deliver that same service, and they are upselling (additional modules to their existing clients) as well;

·        Most of their revenue is recurring in nature, from the same clients, so is predictable and dependable;

·        They have unbelievably low churn, averaging less than 1% per year and around half of one percent in FY20. What that means is more than 99% of their customers are loyal and stay with them every year, and keep paying them every year;

·        Part of that is because of the quality of their software, and the other part is that ERP software is incredibly risky and difficult to change once it's in place;

·        They have had a single high profile unhappy client, the Brisbane City Council, who sued them a couple of years ago and that was settled out of court. However, leaving them aside, the vast majority of TNE's clients are happy and loyal; and

·        Unlike SAP, one of the World's largest ERP software suite providers to large corporations (I worked for Coca-Cola Amatil when they adopted SAP and I know the problems it caused) who have more of a one size fits all approach, TNE's "single instance multi-tenanted Global Saas ERP Solution" is tailored to suit specific industries and then individual companies and organisations within those industries. And with their high R&D spend, they are staying on top of new developments, improvements and new products.

I could go on. Well, I already have, clearly... Anyway, in case I haven't mentioned it already, I'm a fan of TechnologyOne (TNE). And I hold TNE shares.

30-Mar-2021: In January (14-Jan-2021) I set a 12-month PT for TNE of $9.50. They closed at $7.81 that day. They got there (to $9.50, being a +21.6% rise) in less than 6 weeks. And they got there on 22-Mar-2021 during a period in which the NASDAQ had a technical correction and most "Tech" stocks both in the US and back here on the ASX were being sold off quite aggressively. 

They've pulled back a little over the last two trading days (i.e. this week), but they're still within spitting distance of $9.50. They closed at $9.28 today. This could be the start of another leg-down. We shall see. I'm continuing to hold TNE. 

They have a financial year the ends on 30-September, so their half year finishes tomorrow (31-Mar-2021) and they are due to release their half year report in mid-May. It's a quality company and I'm going to hold them now, not trade them. For those who are happy to trade them, this could be a good time to lighten the position and then look to load up when they drop below $8 again, assuming they do drop back below $8 again. They might not.

24-Oct-2021: Yeah, Nah, they did NOT drop below $8, far from it, they are now trading at over $12, after announcing in early September the acquisition of Scientia - UK’s Leading Higher Education Software Provider. So it’s not just organic growth now, there is growth via acquisition on top of that. Market like! TNE were trading at $10.13 the day before that announcement and are now trading at $12.35, so they’ve put on +21.9% since the announcement of the Scientia acquisition. Good thing I decided they were a “Hold through the cycles” stock, eh?! My position six months ago was that they MIGHT have another leg down, but that their superior management, track record and industry position would see them continue to rise at a good clip over time, although probably (almost certainly) not in a straight line.

Rudi Filapek-Vandyck, the founder and editor of FNArena.com, penned an excellent article in December (2020) about TNE which can be read here:

https://www.fnarena.com/index.php/2020/12/03/rudis-view-be-respectful-of-the-past/

It is probably the best bull case for TNE that I’ve read actually, and it echoes my own views.

One thing to be aware of is the ongoing wrongful dismissal dispute known as “TechnologyOne vs Roohizadegan” which has been explained well by TNE in various announcements, their latest two can be read here (05-Aug-2021) and here (10-Sep-2021). Essentially, while I know that there are two sides to every story, I think this case has significant similarities to the one that EGL faced after they terminated the employment of their former CEO, Peter Bowd, in 2017 after he made serious allegations against the company regarding money laundering and accounting irregularities (fraud) including payments made for services not provided. As explained in a June 2019 article published in “The Market Herald”, and in the AFR in July – see here: https://www.afr.com/work-and-careers/workplace/whistleblowing-ceo-not-unlawfully-sacked-20190621-p52020

…Bowd had embarked on a dangerous (to the company) path of trying to undermine and oust the Managing Director of EGL at the time, whose family had built up the Baltec I&E business that is now a division of EGL, and there had been a widespread employee revolt and a situation had developed where the people under Bowd were refusing to work for him. He had effectively become ineffective as a CEO, or to put it another way, the EGL Board had no option but to terminate his employment. When what he had been doing (which included trying to get authorities to initiate investigations into the company’s overseas dealings without the knowledge of the Board) and the fact that employees no longer felt they could work with him, and he was putting contracts at risk because of his actions which could see the company go broke, Bowd stormed out and then the following day went to the Police and to ASIC to complain about alleged illegal activity. He was suspended and then dismissed, and he sued for wrongful dismissal. He claimed general workplace protections (“General Protections”) in respect of being terminated for exercising his workplace rights, and one of those rights was taking sick leave. The Federal Court found that he was NOT dismissed for taking sick leave – see here and here. He also claimed whistleblower protection, but the Federal Court found that his allegations were unfounded and malicious with the sole intent of saving his own job (or presumably allowing for a wrongful/unfair dismissal claim – or breach of general protections under employment law claim - to be made if he were to be dismissed), so the whistleblower protections under employment law did not apply in this case.

The AFR article is likely behind a paywall (the one I’ve linked to above), but it’s worth reading for some context, here’s some of it:

'Whistleblowing' CEO not unlawfully sacked

By David Marin-Guzman, Workplace correspondent, AFR, Jul 2, 2019

A chief executive who was fired for alleging his own company was involved in fraud and money laundering has lost his unlawful dismissal case because a court found he made the complaint only to "save his job".

Former CEO of ASX-listed exhaust producer The Environmental Group (EG), Peter Bowd, told the Australian Securities and Investment Commission in 2017 he had uncovered more than $400,000 in irregular transfers between TEG and its Indonesian subsidiary, PT Baltec.

The complaint alleged the money, paid over 12 months, was in the form of loans not repaid, payment of tender expenses and costs of goods sold but without supporting records.

“As CEO I believed there is substantial fraud and laundering of funds from the Australian business into the Indonesian company by the managing director and sales director," Mr Bowd told ASIC.

He told EG's chairman David Cartney the subsidiary might have paid bribes, parties were "skimming monies out of the company", and that managing director, Ellis Richardson, whose family was the former owner of Baltec, might have engaged in insider trading.

Shortly after the complaint, the board suspended and later terminated Mr Bowd for poor performance.

Rejecting Mr Bowd's subsequent $500,000 damages claim against the company, the Federal Court found no evidence to support his allegations.

Justice Simon Steward said the claims were made in the context of a "severe" breakdown in the board's relationship with the CEO.

"Mr Bowd made his complaint to ASIC with the intent of triggering the whistleblower provisions as a means of preventing his dismissal for poor performance as CEO," he said.

"The allegations contained in that complaint were concocted, or at the very least, deliberately exaggerated."

Mr Bowd had alleged EG's dismissal breached whistleblower protections in the Corporations Act and was adverse action for exercising his workplace right to make a complaint.

But Justice Steward ruled the ASIC complaint was not a workplace right or covered by whistleblower protections because the allegations were "not made in good faith", which he held was a requirement under the Fair Work Act.

"There was no or no sufficient basis for their making. The complaint was used as a calculated device," he said.

'Extraordinary actions'

Mr Bowd was appointed as CEO in September 2016 and, after some success, turned his focus to Baltec.

His scrutiny led to the sacking of a key employee for serious misconduct, the resignation of another and an aborted push to get BDO accounting to undertake a forensic audit without the board's knowledge or consent.

But Baltec staff started to revolt, accusing Mr Bowd of prosecuting a "personal agenda" and claiming a major client was at risk and the company could fold in three to six months.

When Mr Richardson confronted the board with these concerns including that staff morale was low and EG risked losing $4 million in value, Mr Bowd allegedly "stormed out".

Mr Bowd had assumed the board was going to remove him as CEO, the judge found, and the next day decided to complain to ASIC and the police.

Justice Steward said Mr Bowd had complained without the board's knowledge or consent and without waiting for an external audit into his concerns to finish.

"In my view, such extraordinary actions must have played a significant role in the board’s decision that it could not continue to work with Mr Bowd. In my view, in the circumstances of this case, that is entirely understandable."

The company's auditor ultimately found the "irregularities" Mr Bowd identified were actually supported by documents and that his other claims were incorrect.

Two years later neither ASIC nor police have taken any action against EG.

--- end of article/report ---

Now that concerns EGL, not TNE, and the Roohizadegan case is clearly not the same, but there are similarities in my view. I think Adrian Di Marco, TNE’s founder and Executive Chairman, had no choice but to dismiss their Victorian manager Behnam Roohizadegan, who then sued TechOne for breach of general protections under employment law. He won that case and was awarded a record $5.2m payout by the court.  TechOne then successfully appealed that decision and have now been granted a retrial. It’s worth noting that while the original decision has been set aside pending the retrial, TechOne have already sensibly made a provision in their accounts for the $5.2m payout, and that provision remains in place. If the retrial also goes against TNE, they will NOT be in a worse position than they already are, as the money has already been set aside and accounted for. If however TechOne is found to have lawfully terminated Roohizadegan’s employment, they’re going to be able to reverse that provision, so they’ll effectively have another $5.2m cash available. 

The Roohizadegan case was explained well in this 11-June-2021 AFR article: https://www.afr.com/technology/no-basis-for-5-2-million-unfair-dismissal-ruling-techone-tells-court-20210611-p5806j

‘No basis’ for $5.2m industrial relations ruling, TechOne tells court

By Hannah Wootton, AFR Reporter, Jun 11, 2021.

Software company TechnologyOne and its vocal founder Adrian Di Marco are calling for a retrial of an employment law case that has them on the hook for $5.2 million in damages, claiming the trial judge “ignored ... a very large amount of evidence” and made legal errors “in every one of his reasons”.

Justice Duncan Kerr of the Federal Court last year ordered the growing company to pay former Victorian manager Behnam Roohizadegan the record payout after finding the company breached general protections he was afforded under employment law by dismissing him in 2016 after he complained about being bullied at work.

A Federal Court judge found that Adrian Di Marco stood with the bullies, not the bullied, in an unfair dismissal case. Tertius Pickard

According to Justice Kerr, Mr Roohizadegan was subjected to abusive language, victimisation, gas-lighting, and “boorish” conduct while at TechOne, with his treatment at the hands of its executives leaving him “incapable of ever working again”.

But in a full Federal Court hearing littered with legal heavyweights on Friday – industrial relations guru Stuart Wood, QC, appeared for TechOne while Mr Roohizadegan retained Bret Walker, SC – Mr Wood said the trial judge failed to consider key evidence that supported his client’s case.

“ ... Everything was put to his honour, and everything was ignored,” the silk said.

“There was a failure to take into account or analyse ... a very large amount of corroborative material, which was put to His Honour for his consideration in the assessment of the statutory task in which he was engaged.

“The reasons that His Honour provided do not reveal, despite referring to in a number of places ‘the whole of the evidence’, the manner in which the corroborative material that we say should have been deployed was deployed.”

This allegedly included evidence that Mr Roohizadegan’s performance was dropping – which TechOne said was the basis for his dismissal – and an email in which TechOne executives discussed terminating Mr Roohizadegan’s employment that pre-dated the bullying complaints.

He added that there “was a legal error in relation to every one of [Justice Kerr’s] reasons, especially around his alleged failure to consider the nature of the complaints made by Mr Roohizadegan.

The barrister alleged that this was “never considered” by Justice Kerr, forming an “obvious error” in the decision which gave grounds to a retrial.

He also hit back at the judge’s characterisation of Mr Di Marco as an “evasive” witness who, as a boss, chose “to stand with the bullies rather than the bullied”.

In the original judgment, Justice Kerr said Mr Di Marco’s own conduct toward Mr Roohizadegan was “deceptive and self-serving if not cruel” and his evidence before the court as “highly unimpressive ... tortured and evasive”.

When awarding the record damages payment, he said that to achieve “effective deterrence”, CEOs needed to know that “there will be a not insubstantial price for failing” to stand with bullies.

Mr Wood dismissed these findings: “There was obviously no basis on the evidence presented to draw that conclusion,” he said, adding that it “was never” the trial judge’s role to consider Mr Di Marco’s behaviour at that time.

Mr Di Marco’s criticism of proxy advisors has come under scrutiny over the past two months as he has publicly advocated for efforts by the federal government to limit the power of proxy advisors, building on his previous complaints about the firms.

His outspokenness follows TechOne shareholders delivering a first strike against the company’s remuneration report at its February AGM after two proxy houses, Ownership Matters and CGI Glass Lewis, recommended voting against it.

--- end of article/report ---

Two sides to every story, but at the very least I don’t think this has any further negative potential to hurt TNE, particularly as they’ve already provided a provision for the full $5.2m payout as well as legal fees. In their recent ASX announcements regarding this matter, TechOne said, “this was a senior executive earning close to $1m per year, who no longer had the confidence of the board and his fellow executives and against whom serious allegations had been raised by staff, and we took action to address in 2016.”

So, sorry to delve into that murky cesspool for a while, but I think that is one of the two skeletons that have been found in TNE’s closet, the other one being the dispute with Brisbane City Council that was settled out of court in the end a couple of years ago. Their one high profile unhappy client. A lot was made of that dispute at the time, but once again there are two sides to that story as well. I won’t waste time talking about TNE’s side of that one. It’s enough to know that their churn rate is less than 1% p.a. and was less than half of one percent in FY20, and there is no evidence that this very low churn rate deteriorated in FY21. Their FY finishes on 30^th September, so they will report their FY21 results towards then end of November.

Happy holder of TNE in two of my RL portfolios (including my SMSF) and also here on SM.

Raising my TNE PT (price target) to $13.70, and that’s a 2 year PT, so by late October 2023. 

Further Reading:

Annual Reports - TechnologyOne (technologyonecorp.com)

Life@TechOne: Company Values - TechnologyOne (technologyonecorp.com)

TechnologyOne - Global SaaS ERP Solution (technologyonecorp.com)



19-Nov-2024: Update:

Well, they just keep performing - FY24 full year results announced today. Here's their ASX announcement: FY24-ASX-Results-Release-TNE.pdf.

Unfortunately I'm no longer holding this one as they looked fully priced to overbought. I was wrong about that it seems.

They just keep releasing record results every single year:

Ah well, you can't pat all the fluffy dogs, eh Claude?!?