Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi guys, Goldman Sachs upgraded Technology One (TNE) to Buy with increased price target of $18.30 as UK momentum and the broker's confidence in 10%-15% ARR (with potential upside) have increased. Most brokers though have a price target around $15- $15.50, implying that TNE is "fully priced" at the moment. What's your current view on TNE and what would be your ideal entry point? Thanks, Angela
Hi Angela,
We think Technology One (TNE) is a very high quality company that continues to perform well, their earnings underpinned by continual spend on IT and the requirement for companies to deliver better user experiences. At MM, we appreciate the costs of getting technology built/implemented and TNE is benefitting from this trend, just on a larger scale.
TNE typically puts through +3% price increases each year, but this is likely to lift to ~+6% in the near-term as customer contracts are repriced, consistent with inflation. Given price increases on existing work, and a strong pipeline of new work, consensus is already factoring in ~16% earnings growth in FY24. On 30x, we agree with the ‘herd’ on this one, viewing it as fully valued. A cheap way to get exposure to similar trends is through ReadyTech (RDY). Smaller, higher risk, but significantly cheaper.
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