TechnologyOne Ltd (ASX: TNE) shares could be approaching full value now.
That's the view of analysts at Bell Potter, who have downgraded the ASX 200 tech stock this morning.
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What is the broker saying?
Bell Potter highlights that the market is warming up to software-as-a-service (SaaS) shares following a rough period. This has been driven by the release of results from SaaS companies that supported the view that AI could be a tailwind rather than a headwind for some tech stocks.
As a result, the broker has lifted the target multiples that it uses in its valuation model. This has led to Bell Potter lifting its valuation of the ASX 200 tech stock. It commented:
We have increased the multiples we apply in our PE ratio and EV/EBITDA valuations from 52.5x and 30x to 57.5x and 32.5x given the market view on SaaS companies appears to have recently turned more favourable following, in particular, the Atlassian and Salesforce quarterly results which were both strong and exhibited more tailwinds than headwinds from AI.
We also see little risk to our FY26 forecasts for Technology One following the solid H1 result and, if anything, see upside risk to our ARR forecast but not so much the PBT forecast. We do not, however, change the WACC we apply in our DCF of 8.3% given we already consider this quite low. The net result is a 6% increase in our TP to $34.25.
ASX 200 tech stock downgraded to hold
According to the note, despite the increase in its price target, Bell Potter thinks TechnologyOne shares have limited upside following a strong rebound.
This morning, the broker has downgraded the enterprise software provider's shares to a hold rating (from buy) with a $34.25 price target (from $32.25).
Based on its current share price of $32.56, this implies potential upside of 5.2% over the next 12 months.
Commenting on the downgrade, Bell Potter said:
Our updated TP of $34.25 is <15% premium to the share price so we downgrade our recommendation to HOLD. We now see the stock as reasonable value on FY26 and FY27 PE ratios of 66x and 55x respectively. We do see Technology One as one of if not the best quality large cap SaaS company on the ASX but we note it is already trading at almost double the FY26 and FY27 PE ratios of WiseTech (ASX: WTC) on 35x and 28x.
We also see a lack of catalysts for Technology One in the near term as the company does not tend to announce individual contract wins – though some are posted on the website – and we do not expect any change in the FY26 guidance. The next potential catalyst therefore is not until the release of the FY26 result in November when, as said, we see some chance of a beat in the ARR guidance.
