ASX:TNE — Company Profile
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Software developer for midsize enterprises
- Strong longterm growth prospects with healthy margins and an expanding Cloud business
- Great financial health - no debt, no capital raisings
- Sticky customer base with ongoing support and recurring licensing revenue
Unlike larger software vendors, they take full responsibility for implementation and consulting services. The enterprise software is intricately embedded into the client’s technology infrastructure
From the client's perspective, cloud software removes the need to acquire multiple software licences from a range of vendors and effectively outsources IT departments resulting in material cost savings.
- Outstanding management with incredible history of consistent and reliable earnings growth (more than a decade)
- Above average commitment to R&D investment in next-generation cloud platform. The P/E ratio will underestimate profitability
Summary: High price for high quality. A great long-term buy and hold that is currently out of favour.
Adrian Di Marco is Technology One's founder and chairman, having just recently handed the CEO position to long-term TNE executive Edward Chung.
Adrian has over 31m shares, or about 10% of the company.
Director John Mactaggart was an early backer in the business and has over 42m shares.
Technology One develop, sell, implement and support enterprise software for organisations in specialised markets including government, education, financial and health. (Think HR/Payroll, financials, supply chain management, content management etc). A good overview in this recent presentation.
Formed over 30 years ago, it is the dominant provider in its chosen niche and has sustained double digit growth for many years. At present, the business has less than 15% penetration in each vertical in the Asia-pacific market -- so there remains lots of potential for further growth.
Their products are tightly integrated into client systems, and difficult to migrate away from. This is evidenced by 99% customer retention.
The business is debt free with around $93m in cash. It has high pre-tax margins, which are expected to increase from 21% to 25% in the next few years as the business continues to scale. Technology One have continuously paid a dividend over the past 22 years, with dividends (including special dividends) growing at 16%pa on average over past 5 years.
The business has a huge R&D initiative, spending about $50m each year in this area, which is fully expensed. This helps fortify their existing offering, and has seen them expand the product range which will help underpin future growth.
There is big potential in the UK market, which has achieved a critical mass in the past year and is 3x larger than the local market. However the profit contribution is fairly negligible, and unlikely to see any material growth for another couple years as the business consolidates.