Investors are selling off shares in software provider and consultant Technology One Ltd (ASX: TNE) on Wednesday.
At the time of writing, Technology One shares are down 9% from the open as the market continues to digest its full-year results released yesterday.
Whilst its Software-as-a-Service (SaaS) annual recurring revenue (ARR) was up 43% to $192.3 million for the year, amid other strengths, investors were quick to leave the Technology One party yesterday.
The selling pressure has spilled over into today's session with the Technology One share price now sitting at $11.41, down from $12.55 at yesterday's close.
Charging lower despite growth?
Technology One secured a number of growth areas in FY21, as reported in its results. For instance, profit before tax (PBIT) was up 19% at $97.8 million and was at the top end of guidance.
The result was underpinned by the growth of its TechnologyOne Global SaaS enterprise resource planning (ERP) solution.
According to the company, this trajectory puts it on track to hit a target of $500 million ARR by FY26. Given its current ARR is $257.5 million, this equates to an additional $242.5 million of annual recurring revenue in the coming 5 years.
SaaS annual ARR climbed to $192.3 million this year, which looks promising in reaching its target. Tech One also expects that by FY24, its total business should be growing by more than 15% per annum.
During the year, Tech One also added approximately 100 enterprise customers to its Global SaaS ERP solution and now has 637 large scale enterprise customers. With hundreds of thousands of users as well, this makes it the largest single instance SaaS ERP offering in Australia, according to the company.
Further, more than 30 organisations added the company's SaaS ERP offering ahead of its competitors' systems. These include systems from Oracle, SAP, Microsoft, Tribal, and Workday.
TechnologyOne also maintained its presence in the local government sector, closing "20 major deals with $25 million in total contract value". It also has more than 300 council customers in the Asia-Pacific [APAC] region, according to the announcement.
In the higher education sector, Technology One "closed 10 major deals with $30 million in total contract value, cementing [its] position as the dominant provider to the APAC Higher Education sector".
During the year, the company also announced the end of its "on-premise business" by October 2024. The date is intended to give its remaining on-premise customers ample time to make the transition to its "Global SaaS ERP solution". It expects 90% of all remaining on-premise customers to make the transition.
Mixed response to results
There was a mixed response to Technology One's set of results. Analysts at Bell Potter, Jefferies, Macquarie, and UBS were quick to update clients with their thoughts.
Bell Potter reckons the pullback in Technology One share price is a buying opportunity. It retained its $15 price target and held its buy rating on the share.
Analysts at each of Jefferies, Macquarie, and UBS aren't so rosy on the situation. UBS cut its rating to sell despite raising its price to $11.90/share, citing reasons of valuation. However, it acknowledged the company's solid annual result.
Jefferies noted that Tech One shares are trading at a record multiple that already has its performance baked in, and values the company at $11/share.
The broker notes the move from on-premise is positive for the company. It also reckons that "beyond FY24, however, growth from conversions is less likely and Technology One already has a strong presence with domestic customers (circa 70%)".
This, it reckons, "may require the driver of growth to shift to either the UK or products currently in development".
Meanwhile, Macquarie analyst Mitchell Sonogan also cut the bank's rating on Technology One to underperform from neutral. It re-rated the company at an $11 price target as well.
In the past 12 months, the Technology One share price has climbed more than 26%, rallying over 31% this year to date.
