TechOne shares hit record high on dividend, profit jump

The tech group is confident of thriving in a tough economy after landing 25 major enterprises including universities as new customers.

TechnologyOne chief executive Ed Chung.

TechnologyOne shares have soared to a record high after the company hiked its interim dividend and booked a 24 per cent jump in profit, thanks to strong demand for its products.

After the $5.12bn company delivered its financial results, outspoken chief executive Ed Chung said the company would continue to lift dividends should TechnologyOne continue to generate cash and that “AI was a solution looking for a problem”.

Mr Chung also outlined the company’s plan to become the number one student management platform in the UK.

“It’s always a board decision, but provided that we continue to generate cash as we always have, and we predict that we’re going to have great cash generation in the full year, and we’ll always leave a bit of firepower for acquisitions, the intention is to continue special dividends,” he told The Australian.

Shares in TechnologyOne rose 3.5 per cent to a record high of $15.86 on the ASX around midday. But have come off a bit in afternoon trading, up 3 per cent to $15.77.

Mr Chung’s comments follow the group’s forecast of annual profit growth of up to 15 per cent, amid stronger customer growth and retention

TechnologyOne was on track to reach its annual recurring revenue goal of more than $500m by 2026, after ARR jumped 22 per cent to $350.6m for the six months to March 31, he said.

Software-as-a-Service fees brought in an almost $50m jump for the company to $200m, while consulting fees and legacy annual licensing fees both took a dip, which the company said was in line with expectations.

Analysts at Wilsons Equity Research said overall TechnologyOne’s results had beaten expectations, but there was some concern that profits would slow in the second half of the year.

“All in all, this was another solid result that was buoyed by a stronger than expected transition to the SaaS product than we were expecting,” the analysis read.

“While this is a good outcome, that somewhat accelerated transition could see a softer 2H top-line SaaS growth figure as the underlying organic growth (new and existing customers) continues unabated, but the ‘conversion’ volumes moderate in 2H. We see nothing in this result at this stage that concerns us, with plenty that consolidates our constructive view on TNE.”

Interim revenue rose 22 per cent to $210.3m, while expenses jumped by a similar amount, up 21 per cent, to $157.6m.

Profit before tax increased 24 per cent to $52.7m, and annual recurring revenue from SaaS products soared 40 per cent to $316.3m.

During an investor call, TechnologyOne made a few remarks toward competitors, and Mr Chung continued comparisons between his company and US global tech giant Salesforce.

“We own our software. We don’t throw it over the fence to an implementation partner like SAP and Oracle does,” Mr Chung said.

The company’s chief operating officer Stuart MacDonald said TechOne had been able to dodge the lay-offs seen at many of the company’s competitors, and that his company would continue to hire.

However, the business had seen some turnover in its R&D business, but that was in the single digits, he said.

Global expansions were proving fruitful for the company, with the UK business’s annual recurring revenue for half close to that of the entire 2022 financial year in 2022, Mr Chung said. Its profit before tax was $3m for the half year.

“As we continue to win more customers and our SaaS Platform continues to scale globally, our profit margin will continue to expand,” he said.

TechnologyOne boss Ed Chung.

One of the company’s highlights during the call was being able to outcompete Oracle and land the London Business School as a customer. It was one of about 25 major enterprise customers the company had, including several councils in Australia, New Zealand and the UK, including the City of Parramatta and the Liverpool School of Tropical Medicine.

Tribal Group was the dominant student management system in the UK, but Mr Chung said in as soon as five years TechOne would have them beat.

“If we fast-forward 5 to 10 years, I predict that we will be the dominant player in higher education and local government in the UK,” he said.

“If you went to a uni in Australia, you’ve probably enrolled through our software, you’ve got your grades and paid your fees and even gotten sanctioned through our software. That’s what our product does.”

In the government and council space, most Australians would have used TechnologyOne’s software to pay rates, register their pets, apply to build a pool or to open a cafe.

Asked why TechnologyOne had taken on the UK as opposed to the US, Mr Chung said it was one of the first regions outside of Australia the company had set up and that it would rather double down than spread itself too thin.

“All of these organisations partnered with us to find efficiencies through transforming their operations to enable more free time and resources, which can then be invested back into their customers and community.”

TechnologyOne revealed its net profit before tax for the 2023 financial year is expected to grow by 10-15 per cent, with SaaS ARR likely to be up 40 per cent. Longer term, the group is on track to surpass total ARR of $500m by FY26.

Behind the strong results was greater customer use of the company’s technology platform, which allows customers to access TechnologyOne services from any mobile device.

TechnologyOne was full steam ahead in its plan to dismantle the tech implementation industry, one Mr Chung described as a “broken model”.

“Implementation costs are six or seven times (that of the software itself) in the big end of town. That’s ridiculous, and it always blows out because it’s in the implementation partner’s interest,” he said.

“They sell the software, they don’t own it, and they only make money through implementation. It’s in their interest to drag it out or land and expand and make you spend more money.”

The results follow a cyber attack on the company earlier this month, which saw share trading briefly halted.

Mr Chung also dismissed concerns about customers and cutting costs in the current economic environment, adding he believed TechnologyOne allowed businesses to operate with better cost efficiency.

“We are on track to surpass Total ARR of $500m+ by FY26, from our current base of $350.6m,” Mr Chung said.

“The economies of scale from our global SaaS ERP solution will also see continuing profit before tax margin expansion to 35 per cent plus.”

TechnologyOne will pay its 4.62c interim dividend on June 16, up 10 per cent from a year earlier.