TechnologyOne On Steady Rise: Stock Performance Reflects Well

TechnologyOne On Steady Rise: Stock Performance Reflects Well

TechnologyOne On Steady Rise

Stock Performance Reflects Well

TechnologyOne (ASX:TNE) is one of Australia’s largest SaaS businesses with offices in 6 countries. It is currently trading at $7.83, dropping from it’s recent high of $9.30. The company recently announced full year net profit before tax guidance of $71.6 Million to $76.3 Million, an increase of 7.7% to 14.7%, when compared to FY2018’s $66.5 Million. This slight slowdown could be the reason for the recent drop in stock price. However, the current YTD shows a huge increase of 29.42%.

Overall, TechnologyOne’s annual performance has been positive citing and increase of SaaS fees by 42%, $37.5 Million and an increase in annual SaaS contract value (ACV) by 45%, $85.8 Million. They’ve also seen an increase in revenue from additional services such as consulting and corporate.

The majority of TechonolgyOne’s customers are mainly in the defensive sectors, local and federal government as well as higher education, which makes the company more appealing for continued revenue and growth.

Following the half year report TechnologyOne has reported the following results; Net Profit before Tax of $24.5 Million up 130%, revenue of $129.3 Million up 5%, expenses of $104 Million down 7%, operating cash flow of $7.8 Million up 100+%, cash and cash equivalents of $68.2 Million up 19%, an increase in dividend of 3.15cps by 10%.

CEO Ed Chung has credited the results to an increase in large-scale enterprise customers being acquired by TechnologyOne.

“We increased the number of large-scale enterprise SaaS customers by 39% to 389. These customers have hundreds of thousands of users, making ours the largest multi-tenanted ERP SaaS offering in Australia… Our SaaS offering is delivering a compelling value proposition for our customers providing them ‘any device, anytime access from anywhere around the globe’, defence-in-depth security as well as a simple and cost-effective way to run their enterprise.” Stated, Technology One CEO Edward Chung.

TechnologyOne also saw a decrease in in the total costs of its UK venture costs from $3.2 Million to $900,000. Having secured a 2 year deal to integrate it’s OneCouncil solution for UK city council Chelmsford City.

“The TechnologyOne system will help us to consolidate our technology stack, simplifying our back-office systems into a single, integrated platform,” Michael Sage, Digital services manager at Chelmsford city council, said.

TechnologyOne says its software OneCouncil is being used by a number of council areas within the UK, including Dover District Council, Horsham District Council as well as Mid Ulster Council.

As efforts to expand in the UK, TNE see growth to approach critical mass over the next two years.

Focusing on the improvement of PBT margins, with their total net profit margin before tax in 2018 being 22%, their aim for 2019 is 25% and ongoing to reach 30%. as can been seen with past performance they have seen a consistent increase from 17% in 2009 to 22% in 2018.

Looking to the future, TechnologyOne has dedicated over $27.8 Million towards R&D continuing to extend their SaaS platform. With their focus for new ventures into new technologies such as machine learning and artificial intelligence.

Software as a services (SaaS), is now an essential part of business, with the SaaS market expected to grow at an annual rate  of 21.1%. As cloud is the precursor for SaaS businesses there are many indicators that the cloud market is a prime indicator for the growth of SaaS markets. Gartner, with the recent release of its cloud forecast predicting that the market will grow by 17.3% in 2019.

TechnologyOne’s roadmap is still in progress to becoming a 100% SaaS player it still relies on revenue from on-premise systems with revenue mostly coming from legacy systems. From its product offering its showing the most growth in SaaS. With almost 400 customers in the space, they predict to acquire 1,000 by  2022, aiming to hit 50% SaaS revenue.

Prior to TechnologyOne’s recent fall in stock price it was on the verge of surpassing the $3 Billion market cap barrier. This would align it with Appen, which is currently valued at $3 Billion as well.

TechnologyOne has additionally selected the cloud computing provider RingCentral to optimise customer engagement and connect to it’s workforce. RingCentral will connect TechnologyOne’s 14 offices within 6 major countries and their 1,200 employees.

Ed Chung, TechnologyOne’s CEO said, “We selected RingCentral for its unified, cloud-first collaborative communications and video conferencing platform that allows for easy integration with our productivity suite and our customer support system.”

This strategy seems to ensure that TechnologyOne will remain a strong international enterprise with a robust network, which will be able to provide SaaS solutions to enterprises across the globe.

By Genson Glier

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