TECHONE FY25 RESULT
FY25 results were solid, with 18% revenue growth to $599 million, and NPAT growth of 17%, which was 3% better at the revenue line and 1% lower at the NPAT line than my estimates. Remember, the FH result was a blockbuster.
The FH/SH splits were interesting, with revenues slowing slightly from 19% to 18%, but NPAT growth significantly slowed from 31% in the FH to 7% in the SH, together with no numeric guidance given for FY26, which brought some uncertainty. Management mentioned that the costs of SaaS+ impacted PBT margins by 2.7%, the bulk of which may have been in the 2H. An inflection point is expected, but management was reticent to state a timeframe. The tax rate was slightly higher, as well, which didn’t help. A special dividend was declared, perhaps to help the story. Management reiterated the LT guidance to double revenues over the next five years and to improve margins. Specifically stated, FY26 will be strong.
Overall, the numbers remain enviable. The EPS growth trajectory is almost a straight line, there is net cash on the balance sheet, and LT growth remains on target. Cash reconciliation remains good.
TNE is building on several fronts with the core SaaS+ package, the path to ERP in 30 days and the AI-driven helper, Plus. (see growth targets below). All are expected to greatly improve sales over time, but some bumpiness can probably be expected. Plus was specifically promoted by management with much interest from clients. It will take some time to hit the ARR growth rates. R&D remains within the broad guidance, and capitalisation and write-off are steady. NRR and churn were within range, but NRR slowed, blamed on cycling the C19 inflation comps.
The pricing of the AI product was interesting, with TNE choosing a simple, licence fee plus a charge per conversation instead of the price per token we usually see in place. The aim is to encourage usage from the client base. Pricing will be adjusted to hit profit targets, I suspect. Plus is regarded as another “game changer” for TNE. There have been a few.
VALUATION and SUMMARY
TNE remains a premium growth stock, but valuation has been an issue, with the pricing of the stock prohibitive. The recent result has enough niggling issues to cause some doubt on a very high valuation. Offshore software stocks are also much lower this year on AI fears. On the valuation, I think the exit PE is most difficult; the earnings growth rate is probably easier to estimate.
Targeting a 10% return and an 18% 5-year eps growth, with an exit multiple of 40X, gives an entry price of $25. Having said that, you very rarely get any attractive entry points into TNE.
Held, but room to add.
@Solvetheriddle a great overview of the $TNE result, which I also consider was a very good result, as the following chart shows:
The market punishment (on a day when tech took a battering in many areas) because of a few $MIllion NPAT "consensus miss" - not guidance (due to significant increases in employee costs including R&D and IT costs, which somewhat backed off operating leverage, given the huge investment in development of the platform for SaaS+ and AI, as well as slightly higher tax) underscores, that what has happened over the last two years is that $TNE has become over-valued. And any hint of underperformance gets punished. So, in that respect, today's market response was not a surprise.
While I still hold about 60% of what I would normally hold (having sold down some earlier) I have rolled forward my previous valuation to get: $28.00 ($22.00 - $33.00), At today's close of $29.26, it needs to fall a little further for me to be buying more. Like you, I'd probably be a buy around $25.00, although FOMO will likely have me pulling the trigger at $26, such is the quality of this business.
Edward Chung made an important point about the NRR trend chart. I think the market got over-excited in FY 23 and FY24 when NRR hit 119% and 117%. SP broke out from much more "sane" and predictable P/E trading bands into a much high realm. Great when you're there, but when you fall, the rebasing can be brutal (witness $XRO, and watch out $PME!)
Today in analyst Q&A, Ed pointed out that CPI peakedin those years (FY23 and FY24), and so a number of 115% for NRR is more aligned to the current pricing increase environment.
To be honest, I think they missed an opportunity TODAY to rebase NRR expectations band to something more sensible like 105% - 115% ... so I am wating for that shoe to drop in February. They can still surpass their ARR $1bn+ target for 2030 with that range, as it is looking like the UK is really ramping up to provide a lot of new business. This is an important part of my long term investment thesis.
So, overall, I am delighted with today's result. The thesis is intact, and I will be very happy to buy more if the tech correction continues. (Afterall, I am looking for somewhere good for my $RUL proceeds!)
Disc: Held (RL 6.8%)
I played around with Perplexity today to do a valuation on TNE, below is what it came up with:
Valuation (P/E method): (Current P/E according to CMC is 68.42)
Applying the current EPS ($0.41) across a range of realistic growth multiples:
- Low: 60x = $24.60
- Median: 87x = $35.67
- High: 100x = $41.00
Conservative historic sector range: 40x–60x for Australian SaaS leaders.
EV/EBITDA Multiple Valuation
- FY25 EBITDA: ~$255.7 million.
- Enterprise Value (EV): ~$7.4–7.5 billion.
- Current EV/EBITDA: ~29x (EV $7,430m / EBITDA $255.7m = 29x).
Valuation (EV/EBITDA method):
- Australian tech leaders trade at 20x–35x EV/EBITDA, with TNE at the top end.
- Using FY25 EBITDA and multiples:
- 20x EBITDA = $5.1 billion EV (share price range ~$28–31)
- 29x actual = $7.4 billion EV (share price range ~$41)
- 35x high = $8.95 billion EV (share price range ~$49)
TNE trades in the top range of ASX tech sector multiples due to its exceptional growth, cash generation, and ARR profile. The valuation range by P/E is about $25–$41, while EV/EBITDA is $28–$49. Investors should be aware that this premium is justified by growth and defensiveness, but any reduction in growth rate or SaaS margin expansion could compress the multiples.
I'd be interested in any feedback of the methods used and results provided by Perplexity.