TechnologyOne Ltd (ASX: TNE) shares have continued their impressive run over the past 12 months.
During this time, the ASX 200 tech stock has risen 60%.
This stretches its five-year return to a mouth-watering 380%.
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Where next for this high-flying ASX 200 tech stock?
The team at Bell Potter has been running the rule over the enterprise software provider ahead of its annual showcase event next month.
The broker believes that there could be some significant announcements at the event, which could potentially drive its shares higher. Especially if they boost prices and expand its margins and total addressable market (TAM). It said:
Technology One will hold its annual Showcase event next month and this is typically aimed at customers – rather than investors – to highlight the company's new products and developments. The event this year looks a bit different, however, given Technology One is flagging the "launch of groundbreaking AI-driven functionality" and is also hosting a Q&A session for investors at the Melbourne event on the 9th.
We therefore believe there will be some potentially significant announcements made at Showcase this year – most likely related to the new AI tool – which warrant disclosure to the market and these are likely to be positive. The Q&A session for investors also suggests there will be some financial details or implications provided and this could relate to such things as pricing, the impact on margins and even the change in TAM.
As things stand, though, the broker is holding firm with its forecasts and continue to expect earnings growth of around 20% per annum through to FY 2027.
That's because it believes the announcements are more likely to show how its growth can be sustained, rather than accelerate it. Bell Potter adds:
There is no change in our forecasts and we continue to forecast PBT growth of 19%, 20% and 20% in FY25, FY26 and FY27 which is close to VA consensus. We do not necessarily expect the announcements to come out of Showcase next month to affect our short to medium term forecasts but rather will provide support for them and also help show how this level of growth could be sustainable for the next five years or more.
Fairly valued
According to the note, the broker thinks that the ASX 200 tech stock is fairly valued at current levels.
As a result, it has retained its hold rating with an improved price target of $38.50. This is largely in line with where its shares trade today.
Commenting on its recommendation, Bell Potter concludes:
With the potential of some material positive announcements at Showcase next month we have increased the multiples we apply in the PE ratio and EV/EBITDA valuations from 75x and 40x to 80x and 42.5x and have also reduced the WACC we apply in the DCF from 8.2% to 7.9% (which has partly been driven by a reduction in the risk free rate from 4.5% to 4.25%). The net result is an 8% increase in our PT to $38.50 which is a 1% premium to the share price so we maintain our HOLD recommendation.
That is, despite the likelihood of some positive AI-related announcements with some actual associated financial impacts we continue to see the stock as around fair value trading on an FY26 PE ratio and EV/EBITDA of c.75x and 40x respectively.
