TechnologyOne Limited is an Australian-based company that is engaged in the development, marketing, sales, implementation, support, and distribution of financial management and enterprise software solutions. The Company has operations in New Zealand, the United Kingdom, the South Pacific, and Malaysia.
TNE, which is a holding in our Value Strategy, provided a market update yesterday which demonstrated why the stock has held up so well throughout this crisis. As the coronavirus’ spread continues to slow in Australia, companies have started to regain confidence with future forecasting which is an important development for CEOs planning cash flows and expenditures. The Value strategy has held several names such as Appen (APX), HUB24 (HUB) and ProMedicus (PME) that have been fortunate enough to avoid significant hits to revenue and this has contributed to their outperformance.
TNE stands out even ahead of those other names as a company whose business model would be unaffected. Transforming into a Software as a Service (SaaS) business (which translates to recurring revenue), TNE’s client base includes government, health and education companies which for the most part has meant that TNE has not seen an impact on revenues.
TNE reported a 7% rise in revenues for the half-year ending 31 March, resulting in a 6% increase in after tax profits. Indicating its confidence in the current environment, TNE has also guided to full year profit growth of between 8-12% which implies a faster-growing second half. Importantly, recurring revenue was up 33%, and recurring revenue now makes up 85+% of TNE’s overall revenue.
TNE is now up almost 20% from our entry in January which is even more impressive when you consider the ASX 200 is down roughly 18% in that time, and it remains one of the higher quality names on the ASX. The stock remains a hold as part of the Value Strategy.
