TechnologyOne Ltd (ASX: TNE) shares were on fire on Wednesday.
Following the release of an update, the ASX 200 tech stock rose 8% to end the day at $23.50.
But if you thought that was where the gains end, think again. That's because Bell Potter has turned bullish on the stock and is tipping it to continue its rise.
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What is the broker saying?
Bell Potter was pleased with TechnologyOne's update, which included an upgrade to its guidance for FY 2026. It said:
Technology One held its AGM today and unusually provided both PBT and ARR guidance for the full year (this is usually provided at the release of the H1 result in May). The guidance for FY26 is: PBT growth of 18-20% (vs BPe 19.9% and VA consensus 17.0%); and ARR growth of 16-18% (vs BPe 17.5% and VA consensus 15.8%). The company also said "we are targeting the top end of the guidance range for both PBT and ARR."
Technology One also provided guidance on the H1/H2 PBT split and said H1 PBT growth is expected to only be "high single digit percentage" due to an $8-9m investment in the biannual Showcase events in H1. But the H2 PBT "will be strong, delivering the full-year step-up consistent with guidance of 18-20%". No guidance was provided on the H1/H2 ARR split suggesting more consistent growth.
Time to buy this ASX 200 tech stock
In response to the update, the broker has upgraded the ASX 200 tech stock to a buy rating with a trimmed price target of $29.00 (from $33.00).
Based on its current share price of $23.50, this implies potential upside of 23% for investors over the next 12 months.
It also expects a modest dividend yield of 1.4% in FY 2026.
Commenting on its buy recommendation, Bell Potter said:
We have reduced the multiples we apply in the PE ratio and EV/EBITDA valuations from 65x and 35x to 55x and 30x given the recent sell-off in the tech sector. We have also increased the WACC we apply in the DCF from 8.1% to 8.4% due to an increase in the risk-free rate from 4.25% to 4.5%. The net result is an 11% decrease in our target price to $29.00 which is >15% premium to the share price so we upgrade our recommendation to BUY.
The risk to our upgrade is now a lack of catalysts and even the H1 result in May may not provide one given the PBT growth will only likely be high single digit. But we do expect the company to reiterate the guidance at the result and this confidence or visibility in the H2 outlook we expect to be well received.
