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SaaS success could boost TechnologyOne's share price

The popularity of TechnologyOne's SaaS product offerings has provided strong impetus to its ongoing profit growth.

Source: Bloomberg

ASX-listed software company Technology One Ltd (ASX:TNE) has just posted another round of record-breaking half-year profits, on the back of the popularity of its SaaS products with new and existing clients.

One leading brokerage now sees room for further gains in TechnologyOne's share price, prompting analysts to raise their price target for the homegrown Aussie tech stock.

TechnologyOne posts record-half year profits

TechnologyOne's latest round of half-year results indicate it just saw another record half-year in terms of profitability, driven by the growing uptake of its SaaS products by major clients in the public and education sectors.

Revenue stood at $240.82 million for the six months to the end of March, for a leap of 20% from a year earlier. Bottom-line profits were $48 million, marking an increase of 16%, and the 15th successive half-year of record results.

TechnologyOne says the results bode well for FY24 full-year growth, posting guidance of 12 - 16% profit growth, on the back of growth in annual recurring revenue of 15 - 20%.

The company has raised its interim dividend by 10c from a year ago, to a record 5.08c per share.

Brokerage Bell Potter is bullish on the results, in particular the rise in full-year profit guidance to 12 - 16% from 10 - 15% historically.

For this reason, the broker has maintained its buy rating for TechnologyOne and raised its price target to $19.00 from $18.50.

Transition to SaaS the key to success

Brisbane-based TechnologyOne is an enterprise software company that was first established in Queensland's Fortitude Valley in 1987.

At its inception, the company used relationship database technology to develop accounting software for business and government clients. It's since evolved over the decades into the largest provider of enterprise resource planning (ERP) software in Australia.

Since November 2010, TechnologyOne has shifted towards the provision of software-as-a-service (SaaS) products via the use of cloud computing, to better cater to the needs of enterprise clients in the digital era.

CEO Ed Chung said the decision to transition to a cloud-based SaaS business model had underpinned TechnologyOne's continued success.

'[The] strong half-year results for TechnologyOne...validate the strength of our SaaS strategy, which continues our strong growth trajectory in both Australia and the UK,' Chung said.

According to Chung, a key driver of revenue growth has been record SaaS fees, courtesy of its popularity amongst existing clients.

'We are one of only a few companies globally that have successfully transitioned from a traditional on-premise software company to a SaaS company, with all but a few customers now live on SaaS,' Chung said.

'Our existing customers continue to expand their use of our global SaaS ERP solution, taking additional products and modules to streamline their operations, as shown by our net revenue retention (NRR) of 117 per cent.'

Chung expects TechnologyOne to hit $500 million in annual recurring revenue (ARR) by FY25, from $423.6 million for the current period.

TechnologyOne grabs key government clients

Chung said new government and educational clients in Australasia and the Asia-Pacific also played a key role in racking up a string of record-breaking revenue growth.

'Our organic growth has continued in the first half through being chosen as a partner by many of the most forward-thinking councils in Australia and New Zealand, such as Newcastle City Council and New Plymouth District Council,' Chung said.

'Government departments in APAC are increasingly turning to TechnologyOne with first-half wins at ASIC and the Department of Primary Industries.'

TechnologyOne also has a number of major clients in the education market, including TAFE WA, as well as an increasing number of UK-based customers such as Solent University Southampton.

'These organisations are selecting TechnologyOne as their ERP provider, due to our deep industry knowledge, local presence, innovative delivery models and our focus on putting our customers and community first.'

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