TNE +4.56%: HY results out for the enterprise software business today, shares were initially on the back foot before rallying through the session. The numbers showed impressive growth for the half, however, they were broadly a touch softer than expected. Annualized Recurring Revenue (ARR) grew 21% to $424m, though this was a slight miss to consensus. Profit Before Tax (PBT) was up 17% to $61.5m, seeing margins here of 25.5% which is up 20bps vs 1H23. Operating cashflow was weak, falling 3% and well behind consensus, while Net Revenue Retention of 117% (over 100% reflecting customers adding products + absorbing price increases) was down from 119% on pcp.
Guidance was also soft, ARR growth of 15-20% vs 19% already baked in and PBT growth of 12-16% was below the 17% consensus estimates. Shares still rallied despite what reads as a miss at the half and on guidance. It largely comes down to the company’s ability to grow recurring revenue with more detail being provided on the shift of existing customers moving to subscription services. There remains a strong runway of growth here which drives value and justifies, to some extent, the company’s ~45x PE.
- We are long ReadyTech (RDY) which is a similar business in the Emerging Companies Portfolio, preferring it to TNE on valuation grounds.
MM is neutral TNE ~$14
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