There are a few S&P/ASX 200 Index (ASX: XJO) tech shares that might be quality ideas to look at.
Technology businesses have the capacity to produce attractive growth with good margins, particularly if they become one of the market leaders.
These two ASX 200 tech shares could be good ones to think about:
Hub24 Ltd (ASX: HUB)
Hub24, the financial platform business, is currently rated as a buy by the broker Credit Suisse, with a price target of $27.70 over the next 12 months.
The broker is attracted to the continuing growth that Hub24 is producing. That growth is expected to continue in the final quarter of FY21.
That third quarter market update saw platform quarterly net inflows of $1.9 billion – an increase of 41% on the prior comparable period. That was also an increase of $0.2 billion than the last quarter.
Total funds under administration (FUA) is now $51.4 billion, including Xplore Wealth, which contributed $17.2 billion as at 31 March 2021, with platform FUA of $35.6 billion at 31 March 2021 (up 136% year on year). Portfolio, administration and reporting services (PARS) FUA of $15.8 billion.
In that update, the ASX 200 tech share said that its new business pipeline continues to grow with 28 licensee agreements signed during the March quarter, with large boutique licensees, self-licensed practices and a new distribution agreement with an existing Xplore client where additional Hub24 products will be offered alongside the current Xplore solutions.
According to the latest available ‘Strategic Insights’ data for the Australian platform market, Hub24’s market share has increased to 2.5% from 1.75% at December 2019. Xplore’s market share – 1.85% at December 2020 – increases Hub24’s combined market share to approximately 4.3%.
TechnologyOne Ltd (ASX: TNE)
TechnologyOne, the global enterprise resource planning (ERP) software business, is rated as a buy by Morgans.
The broker has a price target on the business of $10 over the next 12 months. Morgans is focused on the software as a service (SaaS) and recurring revenue nature of the expected growth.
TechnologyOne released its FY21 first half result to the market a few weeks ago.
Whilst total revenue was up 5% to $144.3 million, expenses declined 5% to $107.4 million. The business saw a large increase in profitability with a 44% increase of profit before tax to $37.3 million and a 48% increase of profit after tax to $28.2 million.
The SaaS annual recurring revenue (ARR) figure increased 41% to $155.8 million.
TechnologyOne believes it’s well positioned as the markets it serves are resilient. Its SaaS software solution is mission critical to its markets around the world. Management are expecting to see its SaaS ARR continuing to grow strongly – up more than 35% over the full year. It’s expecting profit before tax to be up between 10% to 15% for the full year.
Over the long-term the company is expecting to grow penetration with existing customers, win over new customers and expand globally.
In the next few financial years, the ASX 200 tech share’s SaaS and continuing business is expected to grow by more than 15% per annum, once it has wound down its legacy licence fee business.
It’s expecting total ARR to increase to more than $500 million by FY26, from the current base of $233 million. Unlocking economies of scale with the SaaS software should mean a continuing profit before tax margin improvement to 35%.