Enterprise software business TNE is up over 60% so far in 2024, with pullbacks few and far between. The market has pushed the stock higher than expected following its May half-year result, but as we regularly say, don’t fight the tape! The stocks rallied on the company’s ability to grow recurring revenue with the shift of existing customers onto subscription services. As we said in May, there remains a strong runway of growth here, which drives value; we’ve just been surprised by the huge multiple (68x) the market has been prepared to pay, but there are now plenty of stocks that feel expensive as the index tests all-time highs.
The company investor day in July was encouraging and sent the share price ever higher with positive customer feedback around TNE’s product stack and the willingness of these customers to spend more with TNE over time. TNE brought forward its FY25 $500m Annual Recurring Revenue (ARR) target to 1H25. This is a very strong business; the main question is what’s a fair price/valuation to pay after its strong advance.
- We like TNE as a business, but its valuation around $25 is too rich; we like the risk/reward ~$22.
MM is bullish towards TNE medium/long term
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