FNArena’s Weekly Insights – May 29 2023
In Weekly Insights this week:
A Lesson In Quality, And Investing
By Rudi Filapek-Vandyck, Editor
As investors, we all like to snap up a cheap bargain. But the truth is, cheaply priced stocks tend to provide short-term, temporary pleasures, mostly, while a genuine quality gem is the gift that keeps on giving, and giving, and giving.
Investors need not look any further to find evidence of that statement than last week’s interim financial report release by IT services provider TechnologyOne ((TNE)).
While the numbers and metrics were once again of the superb kind, building forth on a remarkable track record and legacy spanning close to two decades, and counting, most analysts and market observers would not describe the shares as “cheaply priced”.
Trading on a forward multiple of 48x times market consensus forecast for FY24 EPS (54x for FY23), it should be no surprise there’s to FNArena’s knowledge only one Buy rating left, from a mesmerised Wilsons, alongside an upgraded price target/valuation of $18.12.
Most targets and valuations congregate around $15-$16 while the share price since the H1 release has risen from $15.50 to $16.44 on Monday. Management at the company has stuck with its guidance for EPS growth between 10-15% but just about everyone, including management itself, believes this will prove conservative when final FY23 numbers will be released later in the year.
Already speculation is growing on how much sooner the longer-term target of achieving $500m in annual recurring revenue -still set for FY26- will be achieved. And by how much can the ARR number exceed the target by then?
Some believe $700m by FY26 is not impossible, which implies there’s more upside in the share price, irrespective of today’s metrics and share price gains already booked.
Herein lays the first major challenge when dealing with a perennially outperformer such as is TechOne: what kind of “valuation” is appropriate?
