TechnologyOne share price is a buy ahead of profit growth acceleration: broker

TechnologyOne’s growth has been tipped to accelerate…

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The TechnologyOne Ltd (ASX: TNE) share price was a relatively positive performer on Friday.

The enterprise software company’s shares edged 0.4% lower to $10.09.

This was despite the ASX 200 index ending the day down by 1.8%.

Why did the TechnologyOne share price outperform?

The TechnologyOne share price fared better than most on Friday thanks to a bullish broker note out of Bell Potter.

According to the note, the broker has retained its buy rating but trimmed its price target on the company’s shares slightly to $12.50.

Based on the current TechnologyOne share price, this implies potential upside of almost 24% for investors over the next 12 months.

What did the broker say?

Bell Potter highlights that in recent years TechnologyOne has been guiding to annual profit before tax growth of 10% to 15%.

However, it suspects that the company’s profit growth could go up a gear in FY 2023 thanks to widening margins and further solid revenue growth. As a result, it is expecting management’s guidance to be increased to 15% to 20% next year.

Historically Technology One has typically provided guidance of 10-15% PBT growth each year and in many cases it has delivered a result towards the upper end of this range. In our view, however, this could be about to change.

If both these events occur then the PBT growth will likely be >15% and the company may therefore raise its guidance from 10-15% to 15-20% next year.

Pleasingly, the broker doesn’t expect the company’s stronger growth to stop there. Bell Potter is expecting this positive trend to continue in FY 2024 and beyond.

We therefore believe that, if and when the company lifts the guidance to 15-20% PBT growth, this will be maintained for the foreseeable future.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended TechnologyOne Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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