The Motley Fool

Technology One Limited (ASX:TNE) shares crash lower on half-year results release

The Technology One Limited (ASX: TNE) share price has crashed lower this morning following the release of its half-year results.

In early trade the enterprise software company’s shares are down 9% to $4.50.

What happened in the first-half?

This morning Technology One reported half-year net profit before tax of $10.4 million on revenue of $120 million. This was a 1% and 6% increase, respectively, on the prior corresponding period.

The main drivers of its top line growth were a 14% increase in total annual recurring revenue and a 51% in annual SaaS platform contract value. Annual licence fees rose 6% and initial licence fees climbed 7% during the period.

On the bottom line this led to earnings per share of 2.55 cents, up 2.4% on the 2.49 cents per share achieved in the prior corresponding period.

As I mentioned earlier today, the market was expecting earnings per share of 2.8 cents per share. This would have been growth of around 12%, which explains why its shares are sinking lower today.

However, the company’s CEO, Edward Chung, appeared to be pleased with the half. He stated that:

“This half Technology One has delivered record revenue, record licence fees and continuing very strong growth in our cloud business. Technology One is on track to deliver profit growth of between 10% to 15% over the full year.”

As Chung pointed out, the star of the show in my opinion was the company’s Cloud business. It delivered a profit of $3 million during the half, up 217% on the prior corresponding period. In light of this, management upgraded its Cloud business profit guidance for the full-year from $5 million to $7 million.

Should you invest?

Based on this result and its last close price, Technology One’s shares were trading at 35x trailing earnings.

While I do believe that its Cloud business has significant long-term growth potential, I’m not convinced that 10% to 15% earnings growth guidance is sufficient to justify a 35x earnings multiple.

Because of this, I would suggest investors avoid Technology One and look elsewhere in the sector at companies such as Altium Limited (ASX: ALU) and Macquarie Telecom Group Ltd (ASX: MAQ).

Alternatively, you could check out this next tech boom.

This “Holy Grail” Technology Could Produce World’s First Trillionaire

One of the world’s richest people is sounding the alarm on what could be a trillion-dollar technology.

And when a tech billionaire – several times over – speaks, it pays to listen.

This could be your chance to get in on the ground floor!

Click here to discover a $19.9 trillion dollar idea — hidden in plain sight!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. 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 Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.