Investor sentiment is positive for Technology One TNE ahead of its interim fiscal 2025 results, scheduled for release on May 20, 2025. Despite a recent pullback, shares trade close to historical highs following its strong fiscal 2024 results.

Why it matters: Technology One has delivered an impressive 18% compound annual growth rate in revenue over the past three years, driven by high-quality ANZ customer wins and elevated inflation, which affects via Consumer Price Index-linked contracts. But we believe both drivers are likely to taper.

  • Government and educational institutions now contribute almost 80% of revenue. With over 75% of ANZ councils and 60% of universities already onboard, new customer acquisitions are slowing. Management is focusing on non-ERP solutions and international expansion to maintain growth.
  • Combined with easing inflation, we forecast an 8% midcycle CAGR. This means the company is set to more than double in size in 10 years, primarily driven by its entrenched ANZ business.

The bottom line: We raise our fair value estimate for wide-moat Technology One by 3% to $16.20 per share on the time value of money. Shares screen as materially overvalued at current prices. We believe the market is ignoring longer-term headwinds to growth.

Between the lines: The nascent UK business is a bright spot, growing 70% in fiscal 2024 amid its first UK metropolitan council partnership. But at just 7% of ARR, we believe the revenue base is too small for meaningful extrapolation.

  • Growth in the UK is also likely to slow. The UK education sector faces headwinds as falling international student numbers squeeze tuition revenue. Universities in the UK are cutting investment and infrastructure spending, driving a major slowdown in software-as-a-service adoption.

Technology One’s growth in the UK needs time to prove itself

We expect Technology One’s strategic focus to revolve around increasing the number of products used by its local government and education customers in Australia and New Zealand. To a lesser extent, we expect Technology One to focus on vertical expansion and geographic expansion into the UK education market.

Technology One has been highly successful in capturing the Australian and New Zealand market for enterprise resource planning software, and we expect this to continue. Technology One’s products are used by councils representing nearly 75% of Australia’s and New Zealand’s populations and over 60% of their universities. We expect these customer verticals to remain the focus as Technology One continues growing its market share in these verticals and develops a broader suite of ERP products for them.

In other verticals, such as federal government and health, Technology One has been comparatively less successful in penetrating the market, and we don’t expect this to meaningfully improve. Technology One’s products are used by around 25% of federal government organizations in Australia and New Zealand and less than 5% of health and community services organizations. We attribute the difference to a lower level of product-market fit. Federal government customers, we believe, have a scale which makes them highly attractive targets for nonspecialized enterprise resource planning providers, which compete heavily. Health customers have more specialized requirements that specialized health ERP providers can better serve, in our view.

Technology One bulls say

  • Technology One’s product suite, like many ERP software suites, is highly entrenched and sticky.
  • Technology One’s customers are some of the most sound a company could wish for, boosting customer retention rates due to the absence of business failure risk.
  • Technology One has substantial opportunity to upsell customers its continuously expanding product suite.

Technology One bears say

  • Technology One already has large market share in some of its verticals, especially the local government segment in Australia and New Zealand, limiting further market share growth.
  • Technology One already offers a fairly comprehensive ERP product suite, leaving little room for growth in the number of products. Expansion beyond ERP into customer experience remains unproven.
  • Geographic expansion into the UK provides opportunity but also presents a more competitive market.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.

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