Technology One Limited (TNE) On Track For Growth


Technology One (TNE) is an end-to-end software solutions provider, catering for a number of industries including government, education, financial services, health and community, utilities, and managed services such as mining, property and media.

Diversified product base

TNE is diversified across a number of different products in that it is able to tailor software solutions to meet the needs of its various clients. For example, TechnologyOne Financials offers solutions that can more easily interpret accounting and financial information.

Because it generates revenue from multiple streams including business and non-business, TNE is not as sensitive to the economic cycle as some other tech companies.

Strong operating metrics

TNE has a history of earnings and revenue growth. Revenue has increased at a compound annual rate of 14% per annum since 2003, with net profit growing at 10%.

Moreover, the group’s EBITDA margin has hovered around 20% over the past five six-month reporting periods. TNE derives the bulk of its revenue from software licensing and consulting fees. The company receives an initial licensing fee for each of its software, which is supplemented by annual licensing fees and consulting service fees.

In 1H12, TNE’s annual licensing fees grew 18% due to high customer retention and satisfaction rates. Although R&D expenses jumped 11% on-year, the Connected Intelligence (Ci) enterprise suite has enjoyed a positive reception thus far. Ci is the group’s flagship suite of products.

TNE’s R&D spend is being ploughed into the next generation Ci, and we would expect the product improvement to be a key driver of sales going forward.

Future is in the cloud

TNE is currently in the process of building its own cloud product, TechnologyOne Cloud. The aim is to offer the Ci enterprise suite through the TechnologyOne cloud.

Cloud computing is the process of storing applications and other data on web-based servers, enabling end users to access the centrally-stored information from multiple locations.

The cloud’s key benefit for TNE’s clients is that they don’t have to install software on all of their computers and devices, which significantly reduces the cost of doing business.

The tech industry is only beginning to scratch the surface with cloud services. Apple released their own version of the cloud with the iPhone 4S, known as the iCloud, late last year.

TNE’s version is currently in the trial phase, but we would expect strong demand for this service once it is up and running after the next few years.

Outlook

TNE has enjoyed solid growth since 2003 due to the quality of its product and service offering. The software industry has low barriers to entry, so there has to be a continual focus on maintaining higher customer satisfaction levels and investing in future technology.

The 18% growth in 1H12 annual licensing fees demonstrates TNE’s customer focus, whilst its investment in TechnologyOne cloud is expected to reap long-term benefits.

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