TechnologyOne Ltd (ASX: TNE) shares have been strong performers over the past month, rebounding strongly after being caught up in the artificial intelligence (AI)-induced tech selloff.
Unfortunately, the team at Bell Potter thinks that this leaves the ASX 200 tech stock fairly valued now and has downgraded it.
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What is the broker saying?
The broker highlights that TechnologyOne's shares now trade at a significant premium to WiseTech Global Ltd (ASX: WTC), Pro Medicus Ltd (ASX: PME), and Life360 Inc. (ASX: 360). It explains:
We downgrade our recommendation on Technology One from BUY to HOLD given the rally in the share price to above our target price. We believe the stock now looks fairly valued on FY26 and FY27 EV/EBITDA multiples of c.32x and 28x which [we] note are the highest in our coverage of S&P/ASX 100 technology stocks and well above that of WiseTech Global on c.22x and 18x.
We acknowledge that Technology One is probably the best placed amongst our coverage of technology stocks to withstand AI disruption given its large proprietary data assets and mostly government and higher education customer base. The company is also embedding agentic AI across its product suite which will both improve the customer experience and further strengthen its position against disruption. But the recent outperformance of the stock relative to others in the sector like WiseTech, Pro Medicus and Life360 now makes it look relatively expensive and we see better value elsewhere.
Downgraded to hold
According to the note, the broker has downgraded the ASX 200 tech stock to a hold rating with an improved price target of $31.00 (from $29.00).
This is largely in line with the current TechnologyOne share price of $30.83.
Commenting on the company, Bell Potter said:
With the recent rebound in technology stocks we have increased the multiples we apply in the PE ratio and EV/EBITDA valuations from 55x and 30x to 60x and 32.5x. and also modestly reduced the WACC we apply in the DCF from 8.4% to 8.3%. The net result is a 7% increase in our target price to $31.00 which is only a modest premium to the share price so is consistent with the downgrade to a HOLD recommendation.
We note there is perhaps a lack of catalysts for the stock with the company already – and unusually – providing full year guidance at the AGM in February (this is usually provided at the H1 result in May). There is also a greater-than-usual earnings skew to H2 this year due to higher investment in H1 so we do not see much if any potential of an upgrade to the guidance at the H1 result.
