29-Nov-2021: Technology One (TechOne, ASX:TNE) released their FY21 full year results on Tuesday morning last week, and their SP dropped -2.86% (or -37 cps) on the day, then their SP dropped another -8.61% on Wednesday (24 Nov) as two brokers downgraded their calls on TNE. Macquarie dowgraded TNE from "Neutral" to "Underperform" with a new $11 TP (target price) and UBS dowgraded TNE from "Neutral" to "Sell" with an $11.90 TP. It didn't seem to help that Morgans maintained their "Add" call on TNE with a $13.73 TP (raised from their previous $10 PT). The other broker covered by fnarena.com who covers TNE is Credit Suisse who maintained their "Neutral" rating with a $12 PT. See below:

I note that as of right now (around 3pm on 29-Nov-2021), fnarena.com have not yet added TNE's FY21 numbers to those graphs in the top half of that screenshot. The broker updates at the bottom ARE up to date however. (As of today at least)

Here's some more detail:

Macquarie - 24/11/2021, Downgrade to Underperform from Neutral, Target: $11.00, Loss to target $-0.47

Following FY21 results for TechnologyOne, Macquarie raises its FY22-24 EPS forecasts by 10%, 15% and15%, respectively, due primarily to lower opex. The broker lifts its target to $11 from $9.20 and notes solid momentum in the SaaS transition.

However, Macquarie reduces its rating to Underperform from Neutral after comparing multiples for domestic and overseas peers. Management's lower revenue growth forecast was also taken into account.

Target price : $11.00 Price : $11.47 (24/11/2021) Loss to target $-0.47 -4.10%

(excluding dividends, fees and charges - negative figures indicate an expected loss).

UBS - 24/11/2021, Downgrade to Sell from Neutral, Target: $11.90, Gain to target $0.43

UBS assesses a solid FY21 result for TechologyOne though downgrades its rating to Sell from Neutral after a 30% share rally in the last three months. The profit result was a 1% beat versus the broker and towards the top end of guidance, primarily due to cost efficiencies.

Management reiterated the FY26 $500m annual reccuring revenue (ARR) target, after progress on SaaS transitions during 2H21, points out the analyst. The broker lifts its target price to $11.90 from $11.70.

Target price : $11.90 Price : $11.47 (24/11/2021) Gain to target $0.43 3.75%

(excluding dividends, fees and charges - negative figures indicate an expected loss).

Morgans - 24/11/2021, Add, Target: $13.73, Gain to target $2.26

TechnologyOne's profit result was in line with Morgans' forecast and towards the top end of the guiidance range. Both revenues and expenses were lower than forecast but tight cost controls supported earnings.

The transition of customers to SaaS continues with SaaS annual recurring revenue up an "impressive" 43% year on year. The legacy on-premise business will be disconinued in 2024 and management remains comfortable with its $500m SaaS ARR target for 2026.

Add retained, target rises to $13.73 from $10.00.

Target price : $13.73 Price : $11.47 (24/11/2021) Gain to target $2.26 19.70%

(excluding dividends, fees and charges - negative figures indicate an expected loss).

Credit Suisse - 24/11/2021, Neutral, Target: $12.00, Gain to target $0.53

Credit Suisse increases its target price for Technology One to $12 from $9.50, following FY21 results that came in at the high-end of guidance. Despite a lack of near-term catalysts, the analyst now expects sustainable double-digit profit growth.

By FY24, the broker forecasts a 35% profit (PBT) margin. End of on-premise support is planned for October 2024, which should accelerate the completion of the shift to SaaS. 

In the longer term, the broker weighs positive drivers (product and geographic penetration) versus increased competition. Neutral rating maintained.

Target price : $12.00 Price : $11.47 (24/11/2021) Gain to target $0.53 4.62%

(excluding dividends, fees and charges - negative figures indicate an expected loss).

--- end --- Source: fnarena.com

The TNE share price was then up +4.27% (or +49 cps) on Thursday, then down -3.34% (or -40 cps) on Friday, and now today they are up +44 cps (or +3.81%) so far, so trading at exactly $12/share as I type this, and they have been as high as $12.19 earlier today. I couldn't really understand the market's negative reaction to the TNE results last week, however it is good to see TNE rising today in a falling market. The cream rises to the top when all is said and done. And TNE is the cream of the ASX IMHO. Disclosure: I hold TNE in multiple RL portfolios as well as here on SM.

As I have stated before, including in my valuation for TNE, they have managed to double their revenue and profits (+100% as a minimum) in a five year period three times already:

Their share price (SP) has reflected that:

30-Nov-2005: $0.57

30-Nov-2010: $0.96

30-Nov-2015: $4.35

30-Nov-2020: $9.18

Today (29-Nov-2021): $12.

As they explained on Tuesday last week:

$500m+ ARR by FY26 - With our fast-growing SaaS business and the announcement of the end of our On-Premise business, we are on track to hit our target of $500m+ ARR by FY26. Given the current ARR is $257.5m, this is an additional $242.5m of Annual Recurring Revenue in the next 5 years.

Revenue from SaaS & Continuing Business was up 9% [in FY21]. This is our future state business. By FY24 we expect our total business to be growing by 15%+ per annum.

Some people might call this optimistic, but TNE have a track record of achieving their own ambitious targets.

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

I agree with Rudi that TNE is one of the best quality companies available to invest in on the ASX, and has been for a number of years. If you are after good growth year after year and a company that sets ambitious targets and then hits those targets, then TNE fits the bill perfectly.

That said, I'm possibly not going to be topping up here at these levels because I last bought TNE shares in January 2021 (this year) at $7.74, and they had significantly more shorter and mid-term upside from those sub-$8 levels than do up here at around $12/share, plus I have a large enough weighting to the company already, particularly considering the capital growth I've enjoyed. If I was underweight TNE shares however, these levels would look pretty good if you take a medium to longer term view, say 3 to 5 years.

Sample photo from their media kit - see here: Media Kit - TechnologyOne (technologyonecorp.com)

Edward Chung (CEO & MD) and Adrian Di Marco (Company Founder, Executive Director and Executive Chairman).

03-Sep-21:  Acquisition of Scientia - UK’s Leading Higher Education Software Provider

BRISBANE, 3 September 2021 – TechnologyOne (ASX: TNE), one of Australia’s largest enterprise Software as a Service (SaaS) companies, today announced it has entered into an agreement for the acquisition of Scientia Resource Management Limited (Scientia), a United Kingdom company servicing the higher education sector.

The likely consideration will be GB£12 million and includes an initial payment of £6m and further payments, based on achieving progressive earnouts out to FY23. Total consideration will be in the form of cash payments funded from internal sources. The acquisition is earnings neutral for FY21.

Edward Chung, TechnologyOne’s CEO said, “This acquisition forms part of our strategic focus to deliver the deepest functionality for Higher Education and it will accelerate our growth and competitive position in the UK as well as have significant benefits in the Australian Higher Education market.”

“Scientia’s market leading product Syllabus Plus provides advanced academic timetabling and resource scheduling. Their products provide mission critical software for over 150 leading Universities across the United Kingdom, and Australia including the University of St Andrews, University of Exeter, Monash University and the University of Queensland”

“The acquisition further expands our Global SaaS ERP solution for Higher Education. The integration of the Scientia’s advanced academic timetabling and resource scheduling capabilities, combined with our market leading Student Management, HR & Payroll, Enterprise Asset Management and Finance capabilities, will provide smarter decision-making eliminating underutilisation of space and resources that is paramount for Higher Education across the globe in a post-covid world” Mr Chung said.

Adrian Di Marco the company’s founder and Executive Chairman said “This is our first international acquisition and demonstrates our deep commitment to both Higher Education and the UK market. The unique IP and marketleading functionality of Syllabus Plus supports our vision of delivering enterprise software that is incredibly easy to use and that substantially enhances our customers’ experience in the Higher Education sector. We are excited about the opportunities this will bring to both our UK and Australian customers in the coming years.”

More details will be provided with our full year financial statements and results presentation.

--- ends ---

I hold TNE in one RL PF and also in my SM PF.  They tend to trend well and they are a good one to either buy and hold, or to buy low and sell high.  I'm tending towards the buy and hold strategy with TNE now.  They have been an excellent performer in terms of business KPIs for a long time, and while they may not have the explosive growth potential of a new start-up or a disruptor, they are also a LOT less risky - there is far LESS downside with a company of this quality that have a track record that is this good.  I like investing in smaller companies, but the spine or core of my RL portfolios tend to be larger, high-quality, proven companies like TNE, CSL, ARB, etc.  Those provide the core growth and stability - and allow me to also play in the smaller end of the market with a smaller percentage of my investable capital - where there is a different (higher) risk/reward equation.

25-May-2021:  TechnologyOne SaaS up 41% & H1 FY21 Profit After Tax up 48%

plus:  TNE H1 FY21 Half Year Results Presentation

and:  Half Year Report 2021 - Amended

Key results were as follows: 

• Profit After Tax of $28.2m, up 48%
• Profit Before Tax of $37.3m, up 44%
• SaaS Annual Recurring Revenue (ARR)* of $155.8m, up 41%
• Revenue from our SaaS and Continuing Business of $140.6m, up 7%
• Total Revenue of $144.3m, up 5%
• Expenses of $107.4m, down 5%
• Cash and Cash Equivalents of $100.1m, up 20% from 31 March 2020
• Cash Flow Generation** of ($2.9m) as expected, and will be strong over the full year
• Dividend of 3.82cps, up 10%
• R&D expenditure (before capitalisation) of $34.6m, up 14%, which is 24% of revenue

Notes:

1. (*) ARR represents future contracted annual recurring revenue at period end. This is a non-IFRS financial measure and is unaudited.
2. (**) Cash Flow Generation is Cash flow from operating activities less capitalised development costs, capitalised commission costs and lease payments. This is a non-IFRS financial measure and is unaudited.

[I hold TNE shares.]

28-Jan-2021:  UBS, the only broker to have been bearish on TNE, has just double-upgraded TNE from a "Sell" to a "Buy" - quite a turnaround!  Which means TechOne is one of the few stocks rising today amidst a sea of red.  Here's a summary of what UBS said:

UBS - 28/01/2021:  Upgrade to Buy from Sell:  Target: $9.15:  Gain to target $0.69

In the wake of TechnologyOne's recent de-rating, the broker has double-upgraded to Buy from Sell. The stock has underperfomed the Small Ordinaries by -15% since its November earnings result, and -25% since the prior May result.

The broker sees upside risk from faster SaaS conversion, improving UK momentum and greater traction in domestic state/federal government business. Value is on offer compared to both domestic and foreign peers, the broker suggests.

Target rises to $9.15 from $8.45.

--- ends ---

Macquarie has the same price target ($9.15) with a "Neutral" rating.  Morgans has a $9.99 PT and a "Buy" call on TNE.  I hold TNE shares, and they are also one of the largest positions on my Strawman.com scorecard currently.  I was lucky enough to buy them two weeks ago at $7.74/share, at very close to the bottom of their recent decline.  They're heading north again now.  If you have a quick glance at their chart you'll see that they trend very well for months at a time and then reverse direction and trend the other way.  It's a different type of volatility, like volatility in slow motion.  They don't tend to move up and down by large percentages on a day to day or week to week basis, but they have these longer trends - for 2 to 4 months at a time - where they just head North-East or South-East at a steady clip.  About a week ago they started their next North-East leg.  In addition, as I have explained in my valuation and bull case straw, they are one of the most dependable and highest quality companies on the ASX.

[I hold TNE.]

13-Jan-2021:  The best bull case I've read for TNE is here:  https://www.livewiremarkets.com/wires/be-respectful-of-the-past

That's Rudi Filapek-Vandyck from FNArena.com and if you've followed him on Ausbiz's "The Call", you'll know he's a big fan of TNE.

Here's another one:  Mark Moreland of TeamInvest:  https://www.ausbiz.com.au/media/the-call-monday-11-january?videoId=6479

Our own Strawman (Andrew Page) asks Mark about TNE from about the 5:30 mark of that video.  I wouldn't worry too much about Ord Minnett's Francesco De Stradis' concerns about lack of growth, etc, in the coming years.  As Rudi and Mark say, TNE's management are so good, and their track record is so brilliant, that you'd be wise to keep backing them rather than expect their excellent run to come to an end.  Francesco tows the company line, so if Ords have a "buy" on the stock he'll be positive, and if they don't he'll be wary.  That's fine.  Horses for courses.  I tend to listen more to those who clearly know what they're talking about, those who really KNOW the company they are discussing - and ignore the rest.  

Disclosure:  I hold TNE shares, and if they stay below $7.80 tomorrow I plan to buy more (for my superannuation portfolio).  I'm also planning to add them to my Strawman.com scorecard this week.

I've presented my own bull case in my valuation for TNE, so I won't repeat it all here.

13-July-2020:  TechnologyOne Responds to Shareholder Enquiries

Also:  https://www.afr.com/street-talk/short-attack-technology-one-accused-of-growth-illusion-20200712-p55ba0

AFR - Street Talk:  Short attack!  Technology One accused of 'growth illusion'

by Sarah Thompson, Anthony Macdonald and Tim Boyd [Jul 12, 2020 – 9.32pm]

The research firm behind Treasury Wine Estates and CIMIC's scathing short seller reports has turned its blowtorch on Australian software-as-a-service company Technology One.

Hong Kong-based research firm GMT Research has penned a short report targeting Technology One.

Hong Kong-based GMT Research has distributed a confidential report titled "Growth illusion", which claims Technology One used accounting tricks to pull forward revenue and profits "artificially creating growth and hiding a major slowdown".

"Overall, we estimate FY19 profits were inflated by over 200%," GMT's Nigel Stevenson wrote.

Technology One posted a $76.4 million net profit before tax in the year ended September 2019, with revenue climbing 13 per cent year-on-year to $286 million.

GMT said new accounting rules on revenue recognition came into force in fiscal 2019, requiring revenue to be recognised over a contract's period rather than booking it upfront.

"Revenue and profits under the new rules are significantly lower," he said.

The research firm said Technology One had used accounting tricks, like changing contract renewal dates, to pull forward revenue and mask "a major slowdown in the last couple of years".

"Instead of reported growth of 9% and 13%, we estimate underlying revenue was flat in FY18 and grew just 1% in FY19."

Technology One chief executive Edward Chung told this column via email that the company had not seen or been able to access the report, which was dated June 24.

"GMT research spent only 30 minutes with us, so we are very surprised with their limited knowledge that they would have published a report in the first place, and more importantly without verifying the accuracy of the report with us," he said.

"As we all know this seems to be the standard approach taken by the short seller community, to ambush a company. Given this background we see GMT Research has little credibility, and we do not plan to provide any further comments on the matter."

Technology One is an enterprise software company that sells a SaaS solution to its clients, including Seven West Media and QIC Limited. It has been on short sellers radars for a while; 4 per cent of its shares were reported as sold short at the start of the year, and 2.8 per cent at last count, according to ASIC data.

GMT is the same research firm that took at swing at Treasury Wine Estates' business and accounting practices in August last year. It also took aim at CIMIC in May 2019 for "accounting shenanigans", a report that wiped $1.6 billion of value off the infrastructure giant in two days trade.

Technology One's shares last traded at $8.74 and GMT has a $4.65 price target on the stock.

--- click on link above for more ---

Sarah Thompson has co-edited Street Talk since 2009, specialising in private equity, investment banking, M&A and equity capital markets stories. Prior to that, she spent 10 years in London as a markets and M&A reporter at Bloomberg and Dow Jones.

Anthony Macdonald co-edits Street Talk, specialising in private equity, investment banking, M&A and equity capital markets. He has 10 years' experience as a business journalist and worked at PwC, auditing and advising financial services companies.

Tim Boyd is a journalist based in Sydney who writes for the Street Talk column.

[I don't hold TNE shares.  I like the company.  I've owned shares in prior years, but they've been too expensive for me of late.]

TNE closed down -6.4% at $8.18 today (Monday July 13th, 2020).

Further Reading:  https://www.gmtresearch.com/en/research/tecnology-one-growth-illusion/