The TechnologyOne Ltd (ASX: TNE) share price has gone up after investors heard the annual general meeting (AGM) update.
TechnologyOne is an enterprise software provider for many businesses around the world.
FY20 results recap
TechnolgyOne reminded investors that in FY20 it generated underlying net profit before tax growth of 13%, which represented the 11th consecutive year of record profit. It boasted that it continues to double in size every five years.
The company said that its software as a service (SaaS) continues to drive growth and the outlook for FY21 is strong. It said that its SaaS annual recurring revenue (ARR) is growing at 32% per annum. SaaS ARR went up to $135 million in FY20.
It grew its dividend by 8% to 12.88 cents per share in FY20.
Growth prospects
TechnologyOne talked up the value proposition of its enterprise SaaS. Some of the benefits include "massive" economies of scale, defence-in-depth security, always being on the latest technology, always being on the latest release and customers apparently save more than 30% on their total cost.
Today, 86% of the revenue is recurring subscription revenue and it has a very low churn rate of less than 1%. The company is expecting ARR to increase to more than $500 million by FY26.
The company is expecting its underlying profit before tax margin to improve to 35% in the next few years. In FY20 it was 29%. Management said that margins are driven by the significant economies of scale from its single global SaaS solution. It is continuing to be disciplined with its expenses. It's rebalancing its investment and headcount to growth areas. It's going to continue its COVID-19-inspired remote implementations and digital user groups.
It also said that cashflow generation is expected to grow strongly. In FY20 its cashflow generation grew by 49% to $66.4 million.
TechnologyOne also pointed out that its consulting profit is rising significantly. Its profit margin improved to 22% in 2020, up from 8% in 2017.
Outlook for FY21
The company said that the enterprise software market continues to be resilient, with key markets remaining strong such as global government, higher education, government and government related businesses.
It said that SaaS is creating significant opportunities and that the 2021 pipeline is strong.
Management expect continuing strong growth in SaaS ARR and profit in the year. It's expecting to double in size again in the next five years.
The company outlined that the sales pipeline is weighted to the second half, like previous years. However, the difference between the first half and second half will not be as great as prior years because of the size of its SaaS business' recurring revenue base.
Broker thoughts
TechnologyOne is liked by the broker UBS, which thinks that the SaaS growth is attractive, including the momentum in the UK and success in the local government business.
UBS thinks that the TechnologyOne share price looks good value compared to others in the sector. The broker has a share price target for TechnologyOne of $9.15.
