For a company with a market capitalisation of $1.1 billion, software developer Technology One Limited (ASX: TNE) doesn't seem to garner investors' attention as much as it perhaps should.
The software developer has been an outstanding investment for savvy long-term holders of the stock with the share price gaining around 40% in the past year, 380% in the past five years and 600% in the last ten years. What's more, the group can boast of continually paying dividends since 1996 and having been profitable every year since 1992.
With an historical growth record such as that, Technology One is definitely a business worth following.
Technology One develops what is described as integrated enterprise business software solutions. In plain English, this is software that helps organisations run their critical business systems such as payroll and supply chains.
With the share price having slipped close to 10% in the past month, now could be a good time for investors to take a look at the group's recently released half year profit result for the period ending 31 March 2015.
The Results
- Total revenue grew 3% to $90 million
- Net profit after tax (NPAT) fell 10% to $8.9 million (it should be noted that the group was cycling an unusually strong prior corresponding half)
- NPAT equated to earnings per share of 2.87 cents per share (cps)
- Adjusted return on equity was a healthy 15%
- Dividend increased 10% to 2.15 cps, with the board expected to consider a special dividend at the full year
- Net cash balance equating to 15.78 cps
The Outlook
At the start of FY 2015 Technology One's management stated that "the full year pipeline is strong and supports continuing strong growth over the full year."
After the release of the interim result, management updated its guidance to a more detailed forecast of "profit growth of 10% to 15% for the full year."
Based on the mid-point of the latest guidance, investors can expect the group to earn approximately 11.3 cps. With the stock currently trading at $3.79, buyers are paying a price-to-earnings ratio of roughly 33.5x. That's a hefty price – but not as extreme as peers such as XERO FPO NZ (ASX: XRO) which is yet to earn a profit – however if the company can continue to grow earnings over the next five years at rates similar to the past, then that multiple could certainly prove to be justified.
