Now could be the time to buy TechnologyOne Ltd (ASX: TNE) shares.
That's the view of analysts at Bell Potter, who believe a recent contract win by the ASX 200 tech stock is a sign to buy.
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What is the broker saying?
Bell Potter points out that TechnologyOne announced a new contract with James Cook University last month.
Although the contract was not announced to the market, the broker believes it is a bigger deal than you might initially think.
That's because it includes the ASX 200 tech stock's Plus agentic AI offering. It explains:
Technology One announced a new contract with James Cook University (JCU) last month which in our view is significant from a product perspective but perhaps less so from a financial perspective given the announcement was only released on the company's website. The contract is for JCU to consolidate its core systems onto TechnologyOne's OneEducation platform and for Plus – Technology One's Agentic AI product – to help automate workflows, provide deeper insights and improve decision making.
The contract is, therefore, an example of how Plus can drive greater adoption of Technology One's products with a customer as the full value of an AI agent can only be effectively realised when there is a single, integrated platform. Plus looks likely, therefore, to be an effective marketing tool for Technology One that will provide a boost to NRR over the short to medium term. It will also then provide a boost to ARR [annual recurring revenue] and help the company achieve its goal of $1bn+ by FY30.
In light of this, the broker has boosted its estimates for ARR for the medium term.
ASX 200 tech stock upgraded
According to the note, the broker has upgraded TechnologyOne's shares to a buy rating with an improved price target of $31.75 (from $31.00).
Based on its current share price of $27.44, this implies potential upside of 16% for investors over the next 12 months.
In addition, a modest 1.2% dividend yield is expected over the period, lifting the total potential return to approximately 17%.
Commenting on the upgrade, Bell Potter said:
We have rolled forward our PE ratio and EV/EBITDA valuations by a year – so that FY27 is now the base – given we are now in H2. We apply multiples of 50x and 30x compared to 60x and 32.5x previously. There is no change in the 8.3% WACC we apply in the DCF. The net result is a 2% increase in our target price to $31.75 which is >15% premium to the share price so we upgrade our recommendation to BUY.
While the H1 result has already been flagged and is only expected to show high single digit earnings growth, a potential catalyst is strong ARR growth driven by, for example, contracts such as that highlighted above and "the power of Plus".
