Business Overview
What the company does. TechnologyOne, founded in Brisbane in 1987, builds and sells a single integrated enterprise resource planning suite — financials, payroll and HR, asset management, property and rating, student management, supply chain, business intelligence — delivered as SaaS from its own cloud. Its customers are overwhelmingly public sector: local government, universities and TAFEs, state and federal agencies, health services and utilities, across Australia, New Zealand, the Pacific, Asia and increasingly the United Kingdom. It is the only substantial Australian-headquartered enterprise software company of its kind, and it has now completed a transition to what it calls SaaS+, under which implementation is bundled into the subscription rather than sold as separate consulting.
Why the model works. A local council's ERP is the system that issues rates notices, pays staff under complex awards, manages development applications and reports to the state. A university's ERP enrols students and administers a research grant portfolio. These systems are replaced perhaps twice in a generation, the replacement is a multi-year project with genuine career risk for the sponsoring executive, and the regulatory content — award interpretation, rating legislation, planning rules, student compliance reporting — has to be maintained jurisdiction by jurisdiction. That combination is why net revenue retention runs at 114–116%: existing customers reliably spend more each year, on more modules and more users, and essentially never leave. Recurring revenue was 91% of income in FY25 and 93% in the first half of FY26.
Where growth comes from. Three levers, in rough order of contribution. Deepening — selling additional modules into the installed base, which management frames as each APAC vertical sitting below 15% of its addressable market. SaaS+ — bundling implementation into subscription, which lifts ARR per customer and shortens deployment, at the cost of near-term reported margin (FY25 SaaS+ investment represented 2.7 percentage points of PBT margin, by design). The United Kingdom — ARR up 49% in FY25 to $51.8m and a further 23% to $53.0m in the first half of FY26, won in local government and higher education. The UK is roughly 9% of group ARR and is the single largest source of long-term optionality. A fourth lever, newly added, is AI: the in-product AI, Plus and Guide products launched at the FY26 Showcase, which management says expands an addressable market it previously sized at $13.5bn.
TechnologyOne is, on the operating evidence, close to the ideal listed business: a mission-critical product sold to customers who cannot practically leave, in verticals whose IT spending is non-discretionary and legislated, funded entirely from internal cash, growing ARR at 17–18% a year with pricing power that shows up as 115% retention rather than as headline price rises. Sixteen consecutive years of record profit is not a marketing line; it spans the GFC, the mining bust, COVID and a rate cycle. Everything difficult about this memo is on the other side of the ledger — what the market already charges for that quality.
There is no interesting debate about business quality here, and the memo should not manufacture one. The debate is entirely about price and about one near-term execution question: whether the second half of FY26 delivers the 26–29% profit growth that the reaffirmed guidance requires.
Market Dynamics
TNE sells into the least cyclical customer base available on the ASX. Australian local government comprises roughly 540 councils, all of which must issue rates, pay award-covered staff, process development applications and report to state governments. Universities and TAFEs face parallel compliance obligations. None of this spending is discretionary, none of it is deferred for long in a downturn, and much of it is actively pushed forward by regulation. Management sizes the pre-AI addressable market at $13.5bn and notes that no APAC vertical exceeds 15% penetration — a claim worth treating as directional rather than precise, but one consistent with a long runway.
This is the rare business where the regulatory dimension scores well. Privacy Act reform, the Cyber Security Act, evolving payroll award interpretation, planning-system digitisation and state reporting mandates all increase what a council must buy. Each new obligation is content TNE maintains centrally and charges for. Compare the position of a portal or a marketplace operator facing the ACCC.
UK ARR grew 49% in FY25 and 23% in the first half of FY26 to $53.0m, with new sales ARR up 52%. British local authorities and universities have near-identical needs to Australian ones and a comparably ageing software estate. At ~9% of group ARR the UK is small enough to be additive for years and large enough to matter. This is the difference between a regional champion and a genuinely international one.
The in-product AI, Plus and Guide products launched in 1H FY26 are reported to be seeing adoption ahead of expectations, and management argues they expand the addressable market materially. Unlike horizontal SaaS, where an AI assistant can plausibly replace the interface, an ERP's value sits in the system of record and the compliance content beneath it — the layer AI needs rather than replaces.
At A$29.22 the stock trades at roughly 57x FY26E and 49x FY27E earnings, against consensus targets clustered near A$31 — implying analysts see the shares as close to fully valued. The business must compound EPS at the modelled ~16.5% a year to FY30 and retain a premium multiple simply to deliver a low-teens return. A 52-week range of A$20.14 to A$41.44 shows how violently that multiple moves.
FY25 PBT was $181.5m, of which $99.6m came in the second half. FY26 guidance of 18–20% PBT growth implies $214–218m for the year. With $89.1m delivered in the first half, the second half must produce $125–129m — growth of 26–29% against the 9% just reported. Management attributes the first-half shape to planned Showcase and AI investment plus FX, and cites 21% normalised constant-currency PBT growth. The arithmetic is nonetheless demanding, and it is settled in November.
PBT margin was 30% in both FY24 and FY25 and 28% in the first half of FY26. The 35%+ target is explicitly long-term, and SaaS+ investment consumed 2.7 points of FY25 margin by design. Investors are being asked to fund the transition now for margin later. Separately, as the UK grows, a stronger Australian dollar against sterling and the New Zealand dollar increasingly flows into the statutory result — it already did in the first half.
The project's ASX IT sector thesis placed TNE in the 3.0–3.5 band on market position: "strong domestic position with limited but emerging global optionality… dominant in Australian government/education ERP, early innings in UK public sector. Global TAM exists but execution is unproven." Eighteen months on, that assessment still holds, with the UK a little further advanced than it was. The thesis also identified TNE as one of the "data-moated SaaS" names where sector alpha resides, and named government ERP data as one of the two ASX datasets not replicable by a hyperscaler assistant. On multiples the thesis noted TNE trading at roughly 19x EV/revenue against a five-year average of 18–22x — "at/slightly above average, quality premium." On the FY26E revenue modelled here, the current EV/revenue is closer to 13.5x, so the quality premium has compressed even as the business has continued to compound. That compression is the whole of the change in the investment case since the thesis was written.
The sector backdrop for TNE is better than for any other name in this library — regulation drives demand rather than constraining it, customers cannot leave, and the AI question cuts in TNE's favour more plausibly than against it. Two of the three headwinds are about price and phasing rather than franchise. That is a good problem to have, and it is still a problem, because at 57x forward earnings phasing becomes a share-price event.
Management & Governance
After three memos dominated by governance — WiseTech's regulators, REA's controlling shareholder, ResMed's combined chair and CEO — TechnologyOne is a relief to write up. There is no controlling shareholder, no dual-class structure, no open regulatory investigation, no founder dispute and no debt covenant. The company was founded by Adrian Di Marco in 1987 and the founder-to-professional-management transition was completed years ago, with Ed Chung having led the business through the entire SaaS era. The board is conventional and the company was added to the S&P/ASX 50 and to the S&P Global 1200 and International 700 indices in late 2025, which broadens the institutional register. The governance work for an IC here is verification rather than investigation.
| Dimension | Rating | Assessment |
|---|---|---|
| Communication | Green | Guidance is specific, given early and consistently beaten — FY24 PBT +18% against 12–16% guided, FY25 +19% against 13–17%, FY26 upgraded at the February AGM rather than waiting for the half. Management also volunteers a normalised constant-currency "heartbeat" view alongside statutory numbers, which is helpful rather than evasive, though it does mean two sets of growth rates circulate. |
| Capital Allocation | Green | Funds 25%-of-revenue R&D internally, carries no debt, has raised dividends thirteen years running and returned surplus capital as a 10c special in FY25 rather than hoarding it. The mild criticism is that $320m of cash is accumulating without a stated high-return use, and an M&A ambition described as "IP-rich assets" is where good records tend to get spoiled. |
| Track Record | Green | The strongest in this library. Sixteen consecutive years of record profit and revenue through multiple cycles; $500m ARR reached eighteen months early; UK ARR up 49% in FY25 off a standing start a few years prior. This is execution, not narrative. |
| Insider Alignment | Amber | Founder and long-tenured holdings provide some register-level alignment, but executive shareholdings are not large relative to a A$9.5bn company and are equity-incentive driven. Scored Amber on the same basis applied to REA and ResMed, and flagged in Appendix C as a figure this memo has not verified against the annual report. |
| Strategic Clarity | Green | Unusually concrete: $1bn+ ARR by FY30, PBT margin to 35%+, Rule of 40 maintained above 40, UK as the growth engine, SaaS+ as the delivery model. Each is a number an investor can check against in eighteen months. Few ASX companies commit this precisely. |
Management is an argument for owning TNE rather than a risk to be underwritten, and the absence of governance complexity is worth real money relative to the alternatives in this sector. The one place to keep pressure is the FY26 guidance: a company with a sixteen-year record of beating its own numbers has reaffirmed a full-year figure that needs a very large second half. If it lands, the credibility compounds. If it misses, a 57x multiple will not be forgiving.
Financial Analysis
| Year | ARR | Revenue | Growth | PBT | PBT Margin | NPAT | EPS (c) | DPS (c) | NRR |
|---|---|---|---|---|---|---|---|---|---|
| FY24A | 470.2 | 515.4 | +17% | 152.9 | 30% | ~117 | 36.24 | 22.45 | 117% |
| FY25A | 554.6 | 610.0 | +18% | 181.5 | 30% | 137.6 | 42.13 | 36.60* | 115% |
| FY26E | 650 | 680 | +11% | 218 | 32.0% | 166 | 50.8 | 31 | ~114% |
| FY27E | 760 | 775 | +14% | 256 | 33.0% | 195 | 59.5 | 37 | ~114% |
| FY28E | 880 | 885 | +14% | 301 | 34.0% | 229 | 69.6 | 43 | ~113% |
| *FY25 DPS of 36.6c includes a 10.0c special dividend; the ordinary dividend was 26.6c, and the forecast DPS line above is ordinary only. FY24 NPAT is approximate. FY26E is anchored to guidance: PBT growth 18–20% (top end taken) and ARR growth 16–18%; note that reported revenue grows more slowly than ARR because SaaS+ converts up-front implementation revenue into subscription. FY27E–FY28E are the memo's own projections, not consensus. Tax at 24%, consistent with FY25 (PBT $181.5m, NPAT $137.6m). Share count ~326–329m. Consensus for comparison: FY26E EPS ~50c, three-year revenue growth ~14.4% and EPS growth ~20.1%. | |||||||||
FY25 profit before tax was $181.5m, split $81.9m in the first half and $99.6m in the second. FY26 guidance of 18–20% PBT growth implies a full-year figure of $214.2m to $217.8m. TechnologyOne delivered $89.1m in the first half. The second half therefore has to produce $125.1m to $128.7m — growth of 26% to 29% against a first half that grew 9%.
Management's explanation is coherent and may well be right: the first half carried planned investment in the Showcase customer event and the AI product launch, the Australian dollar strengthened against sterling and the New Zealand dollar as the UK became a larger contributor, and on a normalised constant-currency basis underlying PBT grew 21% with ARR up 19% and NRR at 116%. The company reaffirmed guidance in May with that arithmetic fully visible to it, and it has beaten guidance in each of the last two years. But an investor paying 57x forward earnings is underwriting a second half that must be the strongest in the company's history in absolute terms. The result is due on or around 16 November 2026.
FY25 free cash flow of $184.2m grew 55% and comfortably exceeded NPAT of $137.6m; management targets free cash flow equal to NPAT as a standing discipline, and reported a 38% free cash flow margin in the first half of FY26. Cash and investments of $319.6m sit against no debt and net assets of $450.7m, so returns on capital employed are very high and the company has never needed external funding. The Rule of 40 — ARR growth plus pre-tax free cash flow margin — was 59% in FY25 against a self-imposed floor of 40, and 55% at the half. The one genuine earnings-quality question is R&D capitalisation: $153.7m was invested before capitalisation in FY25, equal to 25% of revenue, and how much of that is expensed versus capitalised materially affects reported PBT. This memo has not disaggregated it, and it is the first line an IC should check in the annual report.
| Risk | Rating | Type | Narrative |
|---|---|---|---|
| Valuation / multiple compression | High | Thesis-level | 57x FY26E and 49x FY27E, with 16 analysts averaging a target near A$31. The 52-week range of A$20.14–41.44 demonstrates that a ~16% EPS compounder priced at 57x can lose a third of its value without the business changing at all. This is the binding constraint on the stance and the reason for the Red on dimension 20. |
| FY26 second-half execution | High | Near-term, binary | Guidance requires 26–29% second-half PBT growth against 9% in the first half. A miss against reaffirmed guidance would be the first in years and would hit both the earnings number and the premium simultaneously. Resolved 16 November 2026. |
| Margin expansion deferred | Med | Structural | PBT margin was 30% in FY24 and FY25 and 28% at the half. SaaS+ consumed 2.7 points of FY25 margin by design. The 35%+ target is "long term" without a date. Investors fund the transition now and are paid later; if SaaS+ economics prove worse than modelled, the 35% never arrives. |
| UK execution | Med | Growth-dependent | The UK is ~9% of ARR and carries a disproportionate share of the long-term case. Growth has been excellent (+49% FY25, +23% 1H FY26) but off a small base against entrenched incumbents. It is also the source of the FX drag now appearing in statutory results. |
| AI disruption of enterprise SaaS | Med | Structural, long-dated | The sector-wide de-rating of SaaS multiples reflects genuine uncertainty about whether AI compresses seat-based software value. TNE's compliance content and system-of-record position are a better defence than most, and its own AI launch has been early and well received — but the question is unresolved and is part of why the multiple has compressed from its peak. |
| Concentration and M&A | Med | Structural | Revenue is concentrated in ANZ government and education. With $320m of idle cash, a stated appetite for "IP-rich" acquisitions and organic growth already strong, the risk is a large, out-of-vertical deal that dilutes a pristine record. |
| Balance sheet / solvency | Low | — | No debt, $319.6m cash, free cash flow above NPAT. There is no financial risk in this business whatsoever. |
Two High risks, and neither is about the franchise. One is price, which an investor controls by choosing when to buy. The other is a single result in November, which an investor controls by choosing to wait for it. That combination is what makes this a WATCH rather than an AVOID — the risks here are timing risks, not permanent-impairment risks.
Outlook to FY30 & Investor Opportunity
The frame. TechnologyOne has given the market an unusually checkable long-term target: ARR of $1bn or more by FY30, with PBT margin expanding from 30% toward 35%+, and the Rule of 40 held above 40 throughout. The model below takes those targets at close to face value and asks what they are worth. It is deliberately not heroic — ARR growth decays from 17% to 14% over the period rather than holding, and the margin reaches 35% only in the final year.
The one modelling subtlety is that reported revenue grows more slowly than ARR. Under SaaS+, implementation work that used to be billed as consulting is bundled into the subscription, so the up-front revenue line is suppressed while ARR and future recurring revenue are lifted. FY26 illustrates it precisely: ARR is guided to grow 16–18% while first-half revenue grew 11%. An investor reading revenue growth as the health metric will consistently understate this business; ARR and NRR are the correct instruments.
| Metric | FY25A | FY26E | FY27E | FY28E | FY29E | FY30E | CAGR |
|---|---|---|---|---|---|---|---|
| Annual Recurring Revenue | 554.6 | 650 | 760 | 880 | 1,010 | 1,150 | +15.7% |
| ARR growth | +18% | +17% | +17% | +16% | +15% | +14% | — |
| of which UK (~) | 51.8 | 66 | 84 | 105 | 130 | 158 | +25% |
| Total revenue | 610.0 | 680 | 775 | 885 | 1,000 | 1,125 | +13.0% |
| Profit before tax | 181.5 | 218 | 256 | 301 | 345 | 394 | +16.8% |
| PBT margin | 30.0% | 32.0% | 33.0% | 34.0% | 34.5% | 35.0% | +5.0pp |
| NPAT | 137.6 | 166 | 195 | 229 | 262 | 299 | +16.8% |
| EPS (cents) | 42.13 | 50.8 | 59.5 | 69.6 | 79.4 | 90.3 | +16.5% |
| Ordinary DPS (cents) | 26.6 | 31 | 37 | 43 | 49 | 56 | +16.0% |
| P/E at A$29.22 | 69.4x | 57.5x | 49.1x | 42.0x | 36.8x | 32.4x | — |
| FY26E anchored to guidance (PBT growth 18–20%, top end; ARR growth 16–18%; PBT margin to 32%). FY27E–FY30E are the memo's own projections, not consensus, and assume the company's stated FY30 targets are broadly met: $1bn+ ARR is reached in FY29 on this path, and the 35% PBT margin in FY30. Tax at 24%. UK ARR is a memo estimate assuming ~25% compound growth, reaching ~14% of group ARR by FY30. Ordinary DPS excludes any special dividends of the kind paid in FY25. The bottom row shows what the current share price implies at each year's earnings — it is the single most important line in this memo. | |||||||
If TechnologyOne delivers its own stated FY30 targets — $1bn+ ARR, a 35% PBT margin, no acquisitions, no capital raised — an investor buying today at A$29.22 owns the shares on 32.4x FY30 earnings. That is to say: four years of flawless execution against public targets gets the multiple down to roughly where a high-quality compounder might reasonably trade. Every dollar of return therefore depends on the multiple remaining premium, because the earnings growth alone is already spent on the entry price. That is not an argument that TNE is a bad investment. It is an argument that at A$29.22 the margin of safety is the quality of the business rather than the price of the shares, and an IC should be explicit about which of those two it is relying on.
- 2H FY26 delivers the 26–29% PBT growth guidance implies — the immediate test, in November.
- NRR holds near 114–115%; the drift from 117% (FY24) to 115% (FY25) to 114% (1H FY26) does not continue.
- SaaS+ margin thesis proves out — PBT margin actually moves 30% → 32% → 35%, rather than staying deferred.
- UK ARR compounds ~25% a year to ~$158m, becoming ~14% of group and validating the international case.
- AI products add to ARR per customer rather than merely defending it, on the expanded TAM management describes.
- The market continues to award a premium multiple to ASX quality SaaS — the base case still needs ~46x in 2028.
- A November miss. First guidance failure in years, at 57x, with the Showcase/FX explanation already used.
- Multiple compression alone. No operational failure required: 49x to 30x on unchanged earnings is a 39% loss.
- Margin never arrives. If SaaS+ structurally caps PBT margin near 30–32%, FY30 EPS is ~75c not 90c, and the whole valuation frame shifts.
- NRR decay. A slide toward 108–110% would signal the installed-base deepening engine is maturing — the quietest and most dangerous failure mode.
- UK stalls against Civica, Unit4 and NEC, returning TNE to a regional champion valued as one.
- A large acquisition deploying the $320m cash pile outside the core verticals.
Entry: A$29.22 · Base FY29E EPS: ~79c · Exit multiple: 46x · Base target: A$36 plus ~64c of franked dividends over 24 months → ~12% IRR. Bull: 55x on ~86c = A$47 → ~28% IRR. Bear: 30x on ~65c = A$19.50 → −18% p.a. Probability-weighted at 30/50/20 the two-year expected return is roughly +16% including dividends, about 8% annualised — below what this quality of business should earn an investor, purely because of the entry price.
At A$24 the same base case delivers roughly 24% IRR and the bear case loses 19% rather than 33%. That is the level at which the scorecard's 4.03 composite and the Red on valuation stop contradicting each other, and it is the accumulate trigger. The alternative trigger is temporal rather than price-based: a clean FY26 result in November removes one of the two High risks outright, and would justify paying up to roughly A$27 for what would then be a single-risk proposition.
WATCH. TechnologyOne is the highest-quality business this framework has scored, and nothing in the last two years suggests otherwise — sixteen consecutive record years, no debt, 115% retention, regulation as a customer rather than an adversary. But at 57x forward earnings the shares already contain the whole of a well-signposted decade, and a 52-week range of A$20 to A$41 shows how little of that is guaranteed to stay paid for. Wait for A$24, or for the November result. Both are likely to arrive within a year; neither requires the thesis to change.
Scorecard — 20 Dimensions
| Dimension | RAG | Score | Rationale |
|---|---|---|---|
| A · Business Quality — 6 Dimensions · group average 4.33 | |||
01 Business Model Clarity & Scalability Single-instance SaaS, 93% recurring | Green | 4.5 | One product suite, one cloud, one code base, sold to one broad customer type. Recurring revenue is 93% of income and scales at high incremental margin. Not 5.0 because SaaS+ deliberately suppresses the reported revenue line relative to ARR, which makes the accounts harder to read than the business deserves. |
02 Customer Dependency & Pain Point Government ERP — the deepest lock-in there is | Green | 5.0 | A council's ERP issues its rates notices and pays its award-covered staff; a university's enrols its students. Replacement happens perhaps twice a generation and carries genuine career risk for its sponsor. NRR of 114–116% is the arithmetic proof. The highest-conviction 5.0 in this library. |
03 Competitive Moat & Barriers to Entry Vertical depth + regulatory content | Green | 4.5 | The moat is jurisdiction-by-jurisdiction regulatory content — rating legislation, payroll awards, planning rules, student compliance — maintained centrally and impossible to assemble quickly. Not 5.0 because SAP, Oracle and Workday compete credibly at the larger end, and the UK moat is still being built rather than defended. |
04 Pricing Power NRR 114–116% | Green | 4.5 | Pricing power that shows up as retention above 100% rather than as headline increases is the highest-quality kind: customers spend 14–16% more each year while essentially never leaving. SaaS+ effectively raised realised prices by bundling implementation. The drift from 117% to 114% is why this is not 5.0. |
05 Vulnerability of Business Model ANZ public sector concentration; AI | Green | 3.5 | Heavily concentrated in ANZ government and education, and exposed to the unresolved sector question of whether AI compresses seat-based enterprise software. Against that, no customer can leave quickly and the spending is legislated. The lowest score in group A, and still comfortably Green. |
06 Nimbleness of Company SaaS+ transition, early AI launch | Green | 4.0 | Completed a full transition to SaaS+, launched in-product AI, Plus and Guide ahead of most vertical-software peers, and pivoted meaningful sales capacity to the UK. For a 39-year-old enterprise software company selling to councils, this is genuine agility. |
| B · Sector & Market Quality — 4 Dimensions · group average 3.63 | |||
07 Is the Sector Ahead of the Curve? Public-sector digitisation | Green | 4.0 | Government and education are among the least digitised large verticals, and the migration off on-premise systems has a decade to run. Management's claim that no APAC vertical exceeds 15% penetration is directional but consistent with a long runway. |
08 Expected Regulatory Changes Regulation as demand driver | Green | 4.0 | The standout dimension relative to every other memo in this library. Privacy Act reform, the Cyber Security Act, payroll award changes and planning digitisation all increase what a council must buy, and TNE maintains that content centrally. There is no adverse regulatory exposure of the kind carried by REA, WiseTech or ResMed. |
09 Sector Attractiveness to Stock Market SaaS multiples compressed | Amber | 3.0 | Global and ASX SaaS multiples have de-rated on AI-disruption fears; TNE has traded between A$20.14 and A$41.44 in twelve months on a business that never stopped compounding. Sentiment is a genuine headwind to the return even where it is not a headwind to the business. |
10 Market Position — Local & Global #1 ANZ gov/education ERP; UK ~9% | Green | 3.5 | Applying the project's own ASX IT scoring grid: "strong domestic position with limited but emerging global optionality… dominant in Australian government/education ERP, early innings in UK public sector" is explicitly the 3.0–3.5 band, with TNE named as the archetype. UK ARR growth of 49% then 23% earns the top of that band, not more. |
| C · Management Quality — 4 Dimensions · group average 4.00 | |||
11 Management Quality 16 consecutive record years | Green | 4.5 | Sixteen consecutive years of record profit and revenue; FY24 PBT +18% against 12–16% guided; FY25 +19% against 13–17%; $500m ARR reached eighteen months early. Held at 4.5 rather than 5.0 solely because the reaffirmed FY26 guidance now requires the largest second half in company history. |
12 Executive Preparedness Founder transition long complete | Green | 4.0 | A stable senior team that has run the business through the entire cloud transition, with the founder-to-professional-management handover completed years ago and without drama — a contrast worth noting against WiseTech. Not higher because succession beyond the current CEO is not visible externally. |
13 Skin in the Game Founder legacy holding; modest exec stakes | Amber | 3.5 | Founder and long-tenured register holdings provide partial alignment, and there is no controlling shareholder distorting minority interests. Executive shareholdings are nonetheless modest against a A$9.5bn market capitalisation and largely incentive-derived. This memo has not verified current holdings against the annual report — see Appendix C. |
14 Capital Allocation Discipline No debt, 13 years of dividend rises | Green | 4.0 | Self-funds R&D at 25% of revenue, carries no debt, has raised the dividend thirteen years running and returned surplus capital as a 10c special rather than hoarding it. Held at 4.0 because $320m of idle cash plus a stated appetite for "IP-rich" acquisitions is an unexercised risk, not a demonstrated strength. |
| D · Financial Quality — 6 Dimensions · group average 4.00 | |||
15 Balance Sheet Strength No debt · $319.6m cash | Green | 5.0 | Zero debt, $319.6m of cash and investments, $450.7m of net assets, free cash flow above NPAT, and no external capital ever required to fund the cloud transition. An unqualified 5.0. |
16 Earnings Quality Statutory ≈ underlying; R&D capitalisation | Green | 4.0 | No meaningful gap between statutory and underlying earnings — a genuine rarity in this library after WiseTech's three EBITDA definitions and REA's core-versus-statutory split. Not higher because $153.7m of R&D before capitalisation is material at 25% of revenue, and the expensed-versus-capitalised split materially affects reported PBT. Management's parallel "normalised constant currency" commentary also puts two growth rates in circulation. |
17 FCF Generation $184.2m, +55%; FCF ≈ NPAT target | Green | 4.5 | FY25 free cash flow of $184.2m grew 55% and exceeded NPAT; the first half of FY26 ran a 38% free cash flow margin. Rule of 40 at 59% in FY25 against a 40 floor. Cash conversion is a stated management discipline rather than an accident. |
18 ROIC vs. WACC Capital-light, self-funded | Green | 4.5 | $137.6m of FY25 NPAT on $450.7m of net assets, a third of which is cash, against a WACC near 8% on a beta of 0.59. Returns on operating capital are very high; the drag is the idle cash, which is a capital-allocation matter rather than an economics one. |
19 Dividend Sustainability 13 consecutive years of increases | Green | 4.0 | Thirteen straight years of increases, a ~62% payout, full franking, covered comfortably by free cash flow, plus a 10c special in FY25. The ~0.9% ordinary yield is immaterial to total return, which is what keeps this from 4.5. |
20 Valuation vs. Intrinsic Value 57x FY26E · 49x FY27E · 32x FY30E | Red | 2.0 | The only Red, and it decides the stance. At A$29.22 the shares trade at 57x FY26E and 49x FY27E earnings, and reach 32x only in FY30 — after four years of the company hitting its own public targets. Sixteen analysts average a target near A$31, roughly 6% above the price, with a range of A$22 to A$34. A 16.5% EPS compounder priced at 57x needs the premium to persist for the base case to work; the 52-week range of A$20.14–41.44 shows how readily it does not. Excellent business, demanding price. |
| Composite Score (equal weighted) | 4.03 / 5.0 | Stance: WATCH — the highest composite this framework has produced, and one Red. Under the methodology's own rule, BUY requires a composite at or above 3.8 with no Red dimension; TNE clears the first test by a wide margin and fails the second on valuation alone. Fifteen of twenty dimensions score 4.0 or better and nothing is below 3.0 except price. Buy the business at A$24, or after the November result. | |
It is worth stating plainly what this scorecard is saying, because a 4.03 composite paired with a WATCH looks contradictory. TechnologyOne is the best business examined in this library — better than ResMed, better than CargoWise, better than realestate.com.au — and it is the only one whose entire investment risk is the price paid rather than something inside the company. That is the most favourable kind of problem an investor can face, because it resolves on its own schedule and requires no forecast to be right. It is also a real problem, and pretending a 4.03 composite overrides a Red on valuation is how quality investors lose money in quality companies.
| Assumption | Value | Source / Basis |
|---|---|---|
| FY26E PBT | A$218m (+20%) | Company guidance of 18–20% PBT growth, top end taken (management stated it is targeting the top end); FY25 base of $181.5m |
| FY26E ARR | A$650m (+17%) | Guidance of 16–18% ARR growth on the FY25 base of $554.6m; 1H FY26 ARR was $598.0m |
| FY27E–FY30E ARR growth | +17% decaying to +14% | Memo projection, not consensus. Reaches $1bn+ ARR in FY29, consistent with but slightly ahead of the company's FY30 target |
| Revenue vs ARR growth | Revenue grows ~2–3pp slower | SaaS+ bundles implementation into subscription, suppressing up-front revenue. FY26 illustrates: ARR guided +16–18% while 1H revenue grew 11% |
| PBT margin path | 30% → 32% → 35% by FY30 | FY26 guidance is 32%; the 35%+ target is company-stated but explicitly "long term" with no date attached. Reaching it in FY30 is the memo's assumption, not a company commitment |
| Tax rate | 24% | Implied by FY25 (PBT $181.5m, NPAT $137.6m) |
| Share count | ~326m → ~331m | 326.41m currently; modest creep from equity incentives; no buyback or raising assumed |
| UK ARR | $51.8m → ~$158m by FY30 | Memo estimate at ~25% compound growth, moderating from the 49% of FY25 and 23% of 1H FY26; reaches ~14% of group ARR |
| Dividends | ~62% payout, ordinary only | Consistent with FY24 (62%) and FY25 ordinary; excludes any repeat of the FY25 10c special |
| Exit multiples | 30x / 46x / 55x FY29E | Bear = GARP rating; Base = current 57x forward de-rating toward 46x; Bull = premium largely retained. All applied to FY29E EPS at a September 2028 horizon |
| Scenario probabilities | 30% / 50% / 20% | Bear weighted above bull given the November event risk and the observed A$20.14 low within twelve months |
| Metric | Definition as Used | Note |
|---|---|---|
| ARR | Annual recurring revenue — the annualised run-rate value of subscription contracts in force at period end | The primary growth metric for this business; $554.6m FY25, $598.0m at 1H FY26. Leads reported revenue under SaaS+ |
| NRR | Net revenue retention — ARR from the prior-year cohort this year, including expansion and churn, as a percentage | 117% FY24 → 115% FY25 → 114% 1H FY26 (116% constant currency). Above 100% means the installed base grows without new logos |
| SaaS+ | TNE's delivery model bundling implementation into the subscription rather than billing it as separate consulting | Lifts ARR and shortens deployment; suppresses reported revenue and consumed 2.7pp of FY25 PBT margin by design |
| PBT / PBT margin | Statutory profit before tax; margin is PBT divided by total revenue | The company's primary guidance metric. 30% FY24 and FY25; 28% at 1H FY26; guided 32% FY26; 35%+ long term |
| Rule of 40 | Company definition: ARR growth plus the 12-month rolling pre-tax free cash flow margin (free cash flow as a percentage of ARR) | 59% FY25, 55% at 1H FY26, against a self-imposed floor of 40. Note this differs from the more common growth-plus-EBIT-margin formulation |
| Normalised constant currency | Management's "heartbeat of the business" view, excluding the Showcase event investment and FX translation | 1H FY26: ARR +19%, PBT +21%, NRR 116%, against statutory +17%, +9% and 114%. Useful but not audited — the statutory numbers are what the share price trades on |
| Free cash flow | Company definition, previously labelled "cash flow generation" | FY25 $184.2m, +55%; management targets FCF equal to NPAT |
| P/E | Share price ÷ EPS for the stated year | A$29.22 ÷ 42.13c = 69.4x FY25A; ÷ 50.8c = 57.5x FY26E; ÷ 90.3c = 32.4x FY30E |
| # | Source | As-at | Use in Memo |
|---|---|---|---|
| 1 | TechnologyOne FY25 ASX results release, full-year presentation and FY25 Annual Report | 18 Nov 2025 | All FY25 and FY24 figures: ARR, revenue, PBT, NPAT, EPS, DPS, NRR, UK ARR, FCF, cash, R&D, Rule of 40, net assets |
| 2 | TechnologyOne 1H FY26 ASX release (ASX announcement 19 May 2026) and earnings call transcript | 19 May 2026 | 1H FY26 ARR, revenue, PBT and margin, NPAT, EPS, NRR, UK ARR, interim dividend, Rule of 40, FCF margin, normalised cc figures, AI/TAM commentary, reaffirmed guidance |
| 3 | Stockopedia (ASX:TNE) | 8 Sep 2026 | Share price A$29.22, market capitalisation, enterprise value, consensus EPS ~50c for the next financial year |
| 4 | StockAnalysis; Investing.com; MarketScreener; The Bull | Jul–Sep 2026 | Shares outstanding 326.41m, 52-week range A$20.14–41.44, beta 0.59, 16 analysts with an average target of A$31.16 (range A$22–34.25), earnings date ~16 Nov 2026, three-year growth forecasts |
| 5 | Motley Fool AU; Kalkine; Kosec; Rask; Proactive; RTTNews FY24 and 1H results coverage | Nov 2024 – May 2026 | FY24 comparatives (PBT $152.9m, ARR $470.2m, DPS 22.45c, 62% payout), 1H FY25 PBT $81.9m used for the second-half skew calculation, market reaction commentary |
| 6 | IC Memo project — ASX IT Sector Thesis v1 | Mar 2026 | Market-position scoring grid and band definitions used in dimension 10; sector-level AI and hyperscaler risk framing; historical EV/revenue multiple range |
| Known gaps in this memo. (i) Share price: sources ranged from A$27.11 (late July) to A$32.55 (early August) to A$29.22 (8 September). A$29.22 is used throughout as the most recent explicitly dated figure; every multiple, target and return scales directly with it. (ii) Insider ownership: dimension 13 is scored on the general pattern rather than verified holdings — the FY25 annual report and notices should be checked before the 3.5 is treated as final. (iii) R&D capitalisation: the expensed-versus-capitalised split within the $153.7m FY25 R&D spend has not been disaggregated and materially affects reported PBT. (iv) Board composition: current chair and non-executive directors were not individually verified. (v) FY27E–FY30E projections are the memo's own, not consensus, and assume the company broadly meets its stated FY30 targets. Financial data has not been independently audited. | |||