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Technology One Limited posts record profit: Are shares a bargain?

Credit: Pictures of Money

The Technology One Limited (ASX: TNE) share price has drifted sideways despite the company announcing another strong annual profit result.

In the year ended 30 September 2015, Australia’s leading enterprise software company, pushed revenues 12% higher to a record $218 million. It was the twelfth consecutive year Technology One delivered record revenue.

Growth in net profit before tax was also very impressive, beating expectations for growth of between 10% and 15% to come in 16% higher at $35.7 million. The company said the increased profit was largely a result of record licence fees, especially within the cloud business.

“All our largest new customers were SaaS deals, signifying that customers are embracing our vision for cloud,” Adrian Di Marco, TechnologyOne’s Executive Chairman said. “The major uptake of cloud by new and existing customers has seen us double our cloud Annual Contract value, and we will continue to double this every year moving forward.”

Technology One’s spend on research and development (R&D) is imperative, and during the full year it spent an impressive $41 million on development – equivalent to 19% of revenue.

“Our ability to continue to evolve and adapt both our company and products to a rapidly changing cloud first, mobile first world, has been critical to our continuing success,” Mr Di Marco said.

Pleasingly, Technology One announced a final dividend of 4.63 cents per share and a special dividend of 2 cents per share. Payable 16 December 2015, the company’s full-year distribution stands at 8.78 cents per share – up 8% year over year.

Buy, Hold or Sell?

Technology One is a very impressive Australian software business, proving its resilience in times when other technology businesses continually came up short. However, its potential is fully recognised by investors. Up 282% in five years, Technology One’s share price trades at a price-earnings ratio of 42x. Therefore, I’d advise investors to hold off buying in, for now.

While you wait for the Technology One share price to come off the boil, I suggest running the ruler over XERO FPO NZ (ASX: XRO) or even Iress Ltd (ASX: IRE), which also hold great long-term prospects.

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Motley Fool contributor Owen Raskiewicz owns shares of Xero.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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