TechnologyOne Ltd (ASX: TNE) shares have had a rough time in recent weeks.
So much so, the ASX 200 tech stock is now down 13% from its 52-week high to $37.30.
This share price weakness has caught the eye of analysts at Bell Potter. Let's see what the broker is saying about the enterprise software provider.
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What is the broker saying about this ASX 200 tech stock?
Bell Potter has been looking at its estimates for TechnologyOne and remains confident its growth forecasts. It continues to expect earnings growth of almost 20% per annum through to at least FY 2027.
The broker also sees scope for the ASX 200 tech stock to outperform its FY 2025 estimate. It explains:
We continue to forecast PBT growth of 19%, 20% and 20% in FY25, FY26 and FY27 which is close to VA consensus of 19%, 20% and 21%. We note our FY25 forecast of 19% growth is ahead of the company's guidance of 13-17% growth so we already – and the market – anticipate a beat in November.
We also note, however, our FY25 forecast assumes much lower PBT growth in H2 versus H1 – 10% versus 33% – due to flagged higher sales & marketing costs in H2. The upside risk to our FY25 forecast therefore is S&M costs are not as high in H2 as the company has flagged but, firstly, we have already allowed for some of this in our forecast and, secondly, the company has a recent history of delivering annual PBT growth in the mid to high teens and not higher.
Shares upgraded
In light of this strong profit growth and recent share price weakness, the broker thinks that the tech stock is about fair value at current levels.
According to the note, Bell Potter has upgraded its shares to a hold rating (from sell) with a price target of $35.75. This is a touch below where they currently trades.
Commenting on the upgrade, the broker said:
Since we put the SELL on in mid July the stock is down 7.6% and the S&P/ASX 200 index is up 1.3%. In our view the risk to the upgrade is more at a market level where, as we have seen this week, tech stocks are sold off due to uncertainty or "risk off" and an increase in bond yields.
At a stock specific level we do not see much risk of any disappointment or negative catalyst and, as mentioned, we already expect the company to exceed its guidance when it reports in November. There is, however, some risk perhaps that the market already expects a beat so there is not much if any upside surprise.
