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TechnologyOne HY20 Result – Sound Growth With Minimal COVID-19 Impacts

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

TechnologyOne Ltd (ASX: TNE) is a SaaS (or Software as a Service) company that provides enterprise software. Saas is a cloud-based service where instead of downloading software your desktop PC or business network to run and update, the user instead accesses an application via an internet browser. The software application could be anything from office software to unified communications among a wide range of other business apps that are available. Technology One develops, markets, sells, implements and supports its own enterprise software for each customer. It markets its software in Australia, New Zealand, Malaysia and the UK and has in excess of 1,200 customers across these regions. Technology One's market capitalisation is $3.1 billion.

 

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What are they key features of TechnologyOnes HY20 results?

TechnologyOne’s net profit after tax for HY20 is $25.9 million, up 6%. SaaS annual recurring revenue (AAR) for HY20 is $110 million, up 33%. Interim dividend is 3.47 cents per share, up 10% (60% franked). This represents a payout ratio of 58%.

TechnologyOne’s business operations have only been minimally affected by COVID-19. The main change for the company is that TechnologyOne employees have been working remotely from home instead of the office. However, this is like most service-based technology companies.

Interestingly, TechnologyOne has performed very well during the COVID-19 period compared to market averages. TechnologyOne CEO Edward Chung notes that TechnologyOne customers have been able to seamlessly move from working in their office, to working from home, with no loss of functionality, speed or agility.

The slightly disappointing result from this announcement is that TechnologyOne’s UK business is reporting a loss of around $800k for the half-year. However, management notes that the company sees significant growth opportunities in the coming years. This is mainly attributed to that fact that the UK market is large, approximately 3 times size of the Australian market for TechnologyOne’s enterprise system.


What is the outlook?

The outlook for TechnologyOne is positive. TechnologyOne management notes that the company continues to double in size every 4-5 years. Profit growth for FY20 is expected to be around 8% to 12%.

SaaS ARR, which is a key indicator of the strength of the company’s offering in the market, is expected to be $133 million, up 31%. Total consulting profit is expected to be $12.7 million, up 28%. United Kingdom business operations are expected to break-even. TechnologyOne has a strong balance sheet with no debt and a high proportion of locked recurring revenues.

 

What is the market reaction?

The market reaction to TechnologyOne is slightly negative. TechnologyOne is down around 2% and is currently trading A$9.60. This result is negative as the Australian market today (19 May 2020) is up around 2%. TechnologyOne has a forward P/E ratio in low- fifties and an annual dividend yield of around 1.3%.


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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