@SebastianG it’s quite simple: high net margins; strong sustained eps growth with good earnings stability; provides a strong growth outlook with credibility of having met similar historical projections; expanding its addressable market; compelling innovation story.

Its surge well above trend in the last 4-5 months was a combination of both the good last result (particularly NRR of 117%!), and its recommitment to ongoing sustained high growth, supported by the story of SaaS+. This got a further push from their July investor day where investors got a lot of visibility into how the platform is being developed, and its competitive positioning in all its industry verticles. Importantly, these are expanding well beyond the core areas of government and education.

As long as it continues to deliver it will remain “expensive”. But it does pull back with reasonable frequency (about once a year), whether due to tech macro or softer results or a combination of both. Having sat on sidelines for years, I took one of these opportunities a few years ago, and with the passage of time, it is proving to be a great investment. Just like with $WTC I have occasionally trimmed when SP has flown up above my upper range and topped up on pullbacks. However, as it’s not as volatile as $WTC, I’ve done this less often with $TNE.

My valuation here is $23.70 ($20.70 - $26.60) and it is a top 5 holding for me in RL (not SM). Analyst consensus is $24.55 ($14.50 - $29.00; n=17).

That wide dispersion of analyst views is an indication that some at least consider it grossly overvalued. This is usually the case with highly rated tech businesses. And it is a clue that should $TNE ever stumble, there’d likely be a very large pullback.

I’m not a buyer here, but I’d be happy to add some more around $21. So for me, it’s about patience. If the future looks like the past, I’ll likely get an opportunity.

@SebastianG a mike said, plus the market prices up in the stability of the earnings profile for this one aggressively from time to time, it has one of the most stable and secure earnings growth profiles in the market. which, of course, is worth a lot. As for valuation my buy price that yields a 10% compound return is $14.50, assuming 14% 5Y eps growth, a 1% yield and a 36X exit multiple. Only WTC and PME are at higher exit multiples in my universe. rarely do good s/w companies sustain a PE above 40X for a long period, but look at PME and WTC 150X! go figure

to be clear my time frame is years not days or months, held

@mikebrisy you did better than me, i spent 20 minutes trying to find the webcast and didn't, so have looked through the preso and accounts.

results were slightly better at the top line for me and the rest was a wash, probably to be expected that there will be no huge surprises with this one. the growth is well signalled imo.

i continue to learn about software as a business model. i am late to this party as it wasn't a large (basically non-existent) part of the index when i was a PM. that would have given those investors who were familiar with it or did the work a huge leg up, but that's a different story.

i am intrigued about TNE, its clients and its competitor dynamic. spending 24% of rev on R&D is incredibly risky at first sight, but that volatility does not appear in results, the opposite in fact, TNE is perhaps the most stable grower I've seen. these numbers indicate that something is going on. the ability to control the relationship and integrate with customers from an incumbent position must be a huge advantage in this industry. the spending then becomes less risky as you can understand the clients requirements and wants and understand your product that is already integrated with the client. very different to building a mine or chemical plant. lol

the Govt and semi govt business skew is a big help as well i would have thought.

can the competitors batter down the gates? Possibly an execution stuff up with the big industry moves like from disks to online, or premise to the cloud would be required. or a series of poor calls on development, not understanding the client's needs. would be hard since you are quite close to them. interesting positioning.

sorry for the rant

held

Yeah @Solvetheriddle . They don’t put the link on their releases. You need to register on the IR page of the website. Could be a little more investor-friendly!

TechnologyOne seem to have the councils and Uni market to themselves. They are displacing a lot of piece meal solutions that have been stitched together over the years with a more cohesive cloud suite. Some of their customers are likely still running Lotus Notes or MS Access on servers under engineers desks which was the norm 20 years ago. Those staff are no longer having so much fun now that IT is all so serious and the junkets to extravagant IT conferences are now online, and/or they are nearing retirement and don't want to keep the legacy systems running anymore and worrying about new issues like cyber attacks.

I occasionally speak to councils and they are small customers compared to other levels of government or enterprise where the big 4 and the multi nationals play. Their project budgets are $400k to $1m which is at the small end of town so not many vendors care about that segment. Not when a Business Development Manager will cost you $200k+ pa. Councils are SLOWLY transitioning from on-premise hosting to the cloud and I would say that most of them are already TechnologyOne customers hence the Net Revenue Retention (NRR) >100%. Remember that SaaS includes hosting, licence, support, maintenance and account management. Some of this is typically provided in house or by a third party for on-premise systems, so when they move to SaaS, Tech One gets the whole contract to supply all of those services, and there's margin on each. That is one of the magic tricks with SaaS. The other is "multi tenant" where all customers are on the same instance of software such as Gmail but the limitation is they can't do bespoke integrations easily so most councils will have single tenant SaaS where they have more control of the solution and the integrations.

IMHO SaaS+ delivered in 30 days is a bit of marketing hype. From what I can tell it's just a migration from Tech One on premise, to Tech One cloud. It's impossible to implement a new "line of business" system like an ERP in 30 days unless it is effectively an upgrade. It takes 30 days just to stand up a project and clarify requirements. I recently spoke to a large organisation who aim to implement a new cloud SaaS solution in 30 months, and they admitted that they couldn't cope with change management any faster than that on their side even if the vendor could fast track. Still, SaaS+ would be a good elevator pitch to the average buyer with a day job to focus on.

UK ARR $28.8m, up 36% sounds like it would be critical mass in terms of scale funding a local team of say 100 staff? As long as they stick to their niche.

TechnologyOne are very similar to Objective Corp, so it will be interesting to compare their results when they drop.

Anyway, I'm a happy holder IRL and SM.

@actionman Interesting perspective.

Given that on-prem-to-cloud is largely done for current clients, Saas+ is about new clients and existing clients taking new modules.

While I know almost nothing about local councils, Universities (which have the scale of operations of a large town) spend a LOT on IT, and can spend months/years on large system implementations.

To put it in context, the IT Departments of Australia’s large universities employ anywhere from 200 to 500 staff - continuing and casuals. So the annual staff bill alone is several tens of millions of dollars. I imagine you can add at least as much again for the licences and infrastructure costs.

The annual total expenditure budget of a large university is of the order of $1billion or more.

Now consider Brisbane City Council, albeit one of the nations largest. Annual expenses are over $4bn, of which about $800m is staff and $2.6bn is “materials and services”. I’m guessing there are a lot of systems in all that, and $TNE have 500 product modules, of which I’ve no doubt a lot are in the LG vertical.

Of course, there are smaller LGs. For example, City of Moreton Bay has an annual budget of less than $1bn, incl. capex. So a big university, really.

I think the per client numbers in these two verticals can be very significant.

$TNE’s ARR per customer is between $0.3m and $0.4m. The largest will be several millions $, and the smallest (those which just initial modules) are probably on tens of thousands $.

In any event, I agree with you that a 30 day ERP implementation seems fantastical. Which is why the claim made me sit up and pay attention, and why I’ll be tracking what more they have to say about that over the next 5years.

Perhaps it’s 30 days to stand up one module? Still impressive. I know one Uni spent over a year trying to figure out what expense management system to implement. And I’m currently on the receiving end of change management for a curriculum management system change.

A leading indicator will be the UK, as they’ve gone straight to 100% SaaS+ there, with 5 (or was it 7? Check transcript) implementations done, and a pipeline of many more. Good news for us as investors is that they report UK separately, some have some visibility.

Anyway, lots of good reasons to continue to pay close attention.