The S&P/ASX 200 Index (ASX: XJO) share TechnologyOne Ltd (ASX: TNE) looks like the top pick of the index right now, in my view.
For starters, the TechnologyOne share price has dropped around 30% in the last six months, making it an even more compelling time to consider the business.
TechnologyOne says it's Australia's largest enterprise software company, with a global presence. The business serves over 1,300 leading businesses, government agencies, local councils and universities.
Let's get into why the ASX 200 share is an appealing long-term buy.
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Strong revenue growth
Revenue growth is usually a key driver of how much a business grows over time. TechnologyOne's revenue has been very impressive, and it continues to expand at a strong rate.
During FY25, the business reported total annual recurring revenue (ARR) of $554.6 million, representing growth of 18% year-over-year.
A significant portion of that ARR growth is being driven by a strong net revenue retention (NRR) of 115%. This means existing clients from last year delivered 15% revenue growth, which is a pleasing rate of expansion.
How is the ASX 200 share able to achieve such a strong NRR? It's investing around 25% of its revenue into research and development (R&D), giving subscribers compelling reasons to adopt the ASX 200 share's products and modules at a faster pace. The average customer ARR has grown from $100,000 in FY12 to over $442,000 in FY25.
If it continues with an NRR of 115%, then revenue could double in five years.
Great UK progress
One of the trickiest things about investing in businesses that are priced for a lot of long-term success is figuring out how long they're going to be able to continue growing profits at a strong pace.
TechnologyOne already has a strong presence in Australia, but the business may have found its next leg of growth: the UK. For starters, the UK has a much larger population than Australia, with more than 69 million people. The UK has government, councils, businesses and universities that all need software for their operations.
In FY25, UK ARR jumped 49% to $51.8 million, driven by strong demand in the local government and higher education sectors. TechnologyOne won the signature London boroughs of Islington London Borough Council and the Council of the Royal Borough of Greenwich from global competitors.
I'm expecting its ARR to continue rising in the UK at a strong double-digit pace for the foreseeable future.
Rising margins and net profit
In FY25, the business achieved a profit before tax (PBT) margin of 30% despite investing in its long-term 'SaaS+' (software as a service) strategy, impacting its PBT margin by 2.7%.
The ASX 200 share expects its PBT margin to improve to at least 35% in the coming years, driven by the "significant economies of scale" from its software, as well as the customer response to SaaS+. According to the forecast on CMC Markets, the TechnologyOne share price is trading at 48x FY28's estimated earnings. I think this makes it look good value considering the very positive outlook.
