Proxy Advisor Recommendation Against TNE Rem Report
Proxy reports have been recently issued pertaining to Technology One Limited’s (ASX:TNE) Remuneration Report as follows:
~ CGI Glass Lewis – recommendation vote against Remuneration Report
~ Ownership Matters– recommendation vote against Remuneration Report
~ ISS - recommendation vote in favour of the Remuneration Report
The recommendation against the Remuneration Report is because the TechnologyOne Board exercised discretion pertaining to LTIs, that resulted in LTIs fully vesting.
TechnologyOne has been approached by Shareholders on this matter. We have issued this ASX statement to ensure all our shareholders are fully informed.
TechnologyOne believes that the recommendation by the Proxy Advisors does not take into account the real-world considerations faced by the TechnologyOne Board, as outlined below. (see attachment)
Board discretion occurred to avoid unintended and unfair consequences that would have had a profound impact on executive motivation and retention.
The Board believes executives should be acknowledged and rewarded for the exceptionally strong outcomes delivered during COVID19. Board discretion has not led to an unreasonable outcome. There is a clear alignment between shareholder rewards and executive remuneration after Board discretion.
We ask shareholders to consider the following information and vote in favour of adopting the Remuneration Report at the upcoming AGM.
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.
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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
AFR - Street Talk: Short attack! Technology One accused of 'growth illusion'
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.
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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).
A great post from Strawman member Wini on what's going on with Technology One's earnings..
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.