If you're interested in investing in the tech sector, then you may want to consider the three ASX tech shares listed below.
These three shares have been named as Bell Potter's top picks in the sector for FY 2023. Here's what the broker is saying:
Life360 Inc (ASX: 360)
The first ASX tech share that Bell Potter rates highly is location technology company Life360. While the broker acknowledges that the company isn't profitable yet, it feels investors should look beyond this due to its explosive growth, strong balance sheet, and expectation to be cash flow positive next year.
It commented:
Life360 develops and delivers a mobile app for families – called Life360 – that provides communications, driving safety and location sharing. The company adopts a freemium model to attract customers but has been successfully converting a portion of these customers to paying subscribers over the last several years by providing valuable features. The company has also recently made two acquisitions – Jiobit and Tile – so that now it not only connects and protects people but also pets and things. Yes Life360 is currently not profitable but is expected to be operating cash flow positive from 4Q2023 and has more than sufficient cash to fund its operations till then.
Bell Potter has a buy rating and $7.50 price target on Life360's shares.
Nitro Software Ltd (ASX: NTO)
Another ASX tech share that Bell Potter rates as a buy for the new financial year is document productivity company Nitro Software. Like Life360, the broker expects Nitro to be cash flow breakeven next year and has ample cash to support it through to then.
Nitro is a global document productivity software company that enables digital transformation in organisations around the world through a suite of products built to enable digital workflows. The company has been successfully switching its revenue model from perpetual to subscription and the latter – which is recurring – now represents around two-thirds of total revenue. The company also recently made the acquisition of a leading eSign company called Connective which now positions Nitro as the third global player in the enterprise eSign market. Yes Nitro is also currently not profitable but is expected to be cash flow breakeven in 2H2023 and has more than sufficient cash to fund its operations till then.
The broker has a buy rating and $2.50 price target on Nitro's shares.
TechnologyOne Ltd (ASX: TNE)
A final tech share to buy according to Bell Potter is TechnologyOne. Unlike the others, it is a highly profitable enterprise software company. And thanks to its ongoing shift to a software-as-a-focus business model, it is expected to become even more profitable in the future.
Bell Potter said:
Technology One is a provider of ERP (enterprise resource planning) software to large corporates and government agencies in Australia, New Zealand, Asia Pacific and the UK. The key competitive advantage of the company is it has developed a fully integrated SaaS solution of its software and is now switching customers to this solution. The migration is now around three quarters complete and Technology One is starting to reap the benefits of greater recurring revenue and a higher margin. This combination will in our view drive double digit earnings growth for years to come and, as the migration of customers approaches 100%, we expect the multiple to rerate to that of a pure SaaS company.
Bell Potter has a buy rating and $12.50 price target on TechnologyOne's shares.
