The recent coronavirus-invoked market meltdown has left many ASX technology shares trading at lower multiples than we've seen for some time.
Although the temptation can be to flee in the face of volatility, the current decline in share prices could provide an ideal time to nab a bargain. Here are 3 ASX technology shares I'm considering snapping up in the current maelstrom.
Altium Limited (ASX: ALU)
Altium shares are down 36% (at the time of writing) from their high of over $42 in mid-February. Altium provides software for the design of printed circuit boards that are used in electronic devices. With the internet of things prompting a rapid rise in the number of interconnected devices, Altium stands to benefit from this boom.
Printed circuit boards are central to the design and realisation of electronics that allow the internet to be incorporated into objects. Used in everything from cars to computers, printed circuit boards are ubiquitous, if largely unseen. Altium aims to dominate the printed circuit board design market, which will enable it to compel key industry stakeholders to support its agenda to transform electronic design.
In 1HFY20, Altium Designer, the company's end-to-end printed circuit board design tool, recorded an increase of 19% in users. Altium's subscriber numbers increased 16% to 46,693, putting the company on track to reach its target of 100,000 subscribers by 2025. It is confident of reaching the halfway mark of 50,000 subscribers by the end of FY20.
In its most recent half-year report, Altium recorded a 19% increase in revenue, which grew to US$92.8 million. Strong revenue growth was recorded across all regions, with China recording a 27% increase in revenue, the Americas 11%, and Europe, the Middle East, and Africa 9%.
Profit before tax was up 23% to US$31.8 million. Due to accelerated profitability, the company moved to the full effective tax rate of 27% during the half, which resulted in near flat earnings per share. A dividend of 20 cents per share was declared, an increase of 25% over the prior year.
Due to the uncertainty created by the spread of coronavirus, Altium advised it is likely to land at the lower end of its full-year guidance, which is for revenue between $205 million and $215 million. Nonetheless, Altium is in a strong financial position with a cash balance of US$80.7 million at 31 December 2019, up 39% from 31 December 2018, and no borrowings.
Altium shares are still trading on a relatively high price-to-earnings (P/E) ratio of nearly 44 with a dividend yield of 1.41% at the time of writing. However, this is far below the multiples the share was trading at just a few weeks ago. If Altium can achieve its aim to hit US$500 million in revenue by 2025, its price today could be considered a bargain.
Appen Ltd (ASX: APX)
Appen shares are down more than 32% from their February highs of over $27 and are currently trading at $18.32 at the time of writing. The company develops human-annotated training data for machine learning and artificial intelligence. Working with data types including speech, text, image, and video, Appen brings expertise in more than 180 languages to help companies and governments develop and use products that rely on natural languages and machine learning.
The high-growth artificial intelligence market relies on high-quality training data. Obtaining this data is identified as a major challenge. Appen's leading technology and track record of quality and reliability position it strongly in this market.
In its most recent half-year results, Appen recorded a 47% increase in revenue, which reached $536 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 42% to $101 million with strong organic growth. Underlying net profit after tax (NPAT) increased 32% to $64.7 million. An interim dividend of 5 cents per share, 50% franked, was declared, up 25% on the prior corresponding period (pcp).
At the time of writing, Appen shares are trading on a P/E ratio of 52.95 and a dividend yield of 0.49%, with high multiples reflecting the market's expectations of significant future growth in earnings. Appen's existing customers underpin revenue growth with increased demand for existing and new projects. Nonetheless, Appen is focused on expanding its customer base and has been making significant investments in sales and marketing in 2020.
Appen's China operations are growing fast with the team in place and pipeline building. The China operations are young with modest targets, thus Appen anticipates a negligible impact from coronavirus on FY20 group revenue and earnings.
Appen's Chairman Chris Vonwiller commented, "as we are getting bigger we are getting better, demonstrated by the Company's ability to simultaneously deliver growth, margin expansion, and invest in future-proofing the business through technology, sales and marketing, and entry into new markets."
Technology One Limited (ASX: TNE)
Shares in Technology One have fallen 23% from February highs and are currently trading at $6.84. The company provides Software-as-a-Service (SaaS) enterprise software to more than 1,200 corporations, governments, and universities. Technology One has grown from a factory in the industrial suburbs of Brisbane to become Australia's largest enterprise software company.
In its most recent results, Technology One reported record net profit before tax of $76.4 million, marking its tenth consecutive year of record profits. Net profit after tax (NPAT) increased by 15% to $58.5 million, with NPAT doubling every five years. A dividend of 11.93 cents per share was declared, up 8%.
The company reported that its SaaS business was growing strongly with annual recurring revenue growing at 44% per annum, providing massive economies of scale as the business grows. Annual recurring revenue accounted for 77% of all revenues in FY19 and this is expected to grow to 93% by FY25.
Profit margin increased to 27%, up from 20%, driven by economies of scale from Technology One's single instance global SaaS enterprise resource planning solution. Profit margin is predicted to grow to 35% plus in the next few years.
Technology One sports a robust balance sheet with net assets of $106.9 million, a 38% increase over the pcp. This includes cash and cash equivalents of $105 million. The company has no debt.
