There are some S&P/ASX 200 Index (ASX: XJO) tech shares that I believe could make great investments if they were a bit cheaper.
It has been a strange last 18 months or so. While plenty of ASX 200 tech shares were among the best performers during the COVID-19 pandemic, a number of tech names suffered a sell-off in 2022.
However, pleasingly for shareholders, some of the strongest players in the tech space have gone through a recovery.
I think that both of the below names, global leaders at what they do, would make very attractive investments, particularly if they were 20% cheaper.
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Altium Limited (ASX: ALU)
Altium is a leader at providing electronic PCB design software around the world.
The ASX 200 tech share has done well over the past year, rising by around 25%.
I think that the company is doing everything right to succeed. Altium is spending on marketing and software development on existing products, while its newer offerings are showing very promising signs of growth, including the online cloud platform called Altium 365. Electrical parts search engine Octopart has also grown substantially over the past few years.
The FY23 half-year result showed growth in all the right areas. Revenue rose 17% to US$119.5 million and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved from 34.1% to 36.2%. This helped earnings per share (EPS) rise 29% to 22.53 US cents and the interim dividend was boosted by 19% to 25 Australian cents.
In FY23, the ASX 200 tech share is expecting to grow revenue by between 15% to 20%, with the cloud platform segment expecting revenue growth of between 20% to 30%.
Over the next few years, Altium is expecting to approximately double its revenue, while increasing profit margins.
However, while I am a shareholder and very optimistic about its future, its valuation reflects a lot of the potential. According to Commsec, it's valued at 62 times FY23's estimated earnings. So, it would be even better to buy shares if it were 20% cheaper.
TechnologyOne Ltd (ASX: TNE)
TechnologyOne describes itself as Australia's largest enterprise software company, with locations globally.
It provides a global software as a service (SaaS) enterprise resource planning (ERP) solution that "transforms business and makes life simple" for customers. The ASX 200 tech share has over 1,200 leading corporations, government agencies, local councils and universities,
I think that TechnologyOne's earnings could be really defensive, even in a downturn. Businesses, governments and so on still need to use software, even if the GDP or the share market goes backwards.
The world continues to digitise, which I think is a strong tailwind for a business that is helping enable that. Saving organisations' time, enabling more efficiencies and providing accessibility is valuable, so it doesn't surprise me that TechnologyOne has such a high retention rate and customers want more of TechnologyOne's software over time.
In the half-year result for the six months to September 2022, total revenue rose 18% to $369.4 million and net profit after tax (NPAT) grew by 22% to $88.8 million.
The company's profit before tax margin was 32% and this is expected to rise to 35% in the coming years thanks to "significant economies of scale".
The ASX 200 tech share is valued at 53 times FY23's estimated earnings according to Commsec, so being able to own shares at a 20% discount to today's price would be welcome.
