Technology One Limited boasts it can quadruple cloud revenues to $143 million

Technology One Limited (ASX:TNE) has turned a profit every year since 1992.

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This morning technology services business Technology One Limited (ASX: TNE) reported its financial results for the year ending September 30 2017.

Below is a summary of the results with comparisons to relevant prior corresponding periods.

  • Net profit of $58.3m, up 9%
  • Underlying profit (excluding "one offs") of $65m, up 22%
  • Revenue of $273m, up 10%
  • Total annual subscription revenue of $139m, up 17%
  • Expenses of $215m, up 10%
  • Earnings per share of 14.18c, up 7%
  • Total dividends of 10.2cps, up 8%
  • Return on equity 28%, versus 30% in prior year
  • Expects "strong" profit growth in FY18
  • Expects cloud services profit to double to $5m in FY18

This is another typically strong result from one of the local market's best technology businesses with an impressive 8-year track record of revenue, profit, and dividend growth.

It's the cloud and mobile services growth that is the company's engine room, with annual cloud subscription revenues up 84% over the prior year. The company's profit growth of 22% is also impressive if you accept that the lost BCC contract and Evolve conference costs are not part of the ordinary course of business.

Including the "one offs" profit growth of 9% is still decent, with the group retaining a robust outlook thanks in part to the tailwinds supporting the IT services sector.

For example Technology One believes it can grow its cloud services recurring revenue from $27.1 million today to $143+ million by 2022.

The growth likely to be fuelled by growing demand from the government sector, which has the budgets and is still in a relatively early stage of its transition to online data storage.

Outlook

At $5.32 the stock changes hands for 36x trailing earnings with a 1.9% dividend yield plus the tax effective benefits of franking credits. The business will need to deliver another strong year of growth in FY 2018 to justify this valuation.

Others in the cloud services space to consider include Over The Wire Holdings Ltd (ASX: OTW) or Vocus Group Ltd (ASX: VOC).

Motley Fool contributor Tom Richardson owns shares of Vocus Communications Limited, REA Group and Cochlear. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of Vocus Communications Limited. 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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