TechnologyOne Ltd (ASX: TNE) shares are on watch this morning after reporting profit growth in its FY20 result.
TechnologyOne has reported that its total revenue increased by 4% to $299 million in FY20.
However, revenue from its software as a service (SaaS) and continuing business increased by 12% to $269.8 million. Its SaaS annual recurring revenue (ARR) grew by 32% to $134.6 million. That growth was all organic with no acquisitions. It added 104 enterprise customers this year to its global SaaS ERP solution and it now has 539 large scale enterprise customers with hundreds of thousands of users.
Today, the total ARR has hit $222 million and is set to exceed $500 million in the coming years. Its ARR represents 86% of total revenue. In the UK its business is now breakeven after SaaS ARR grew 22% to $7.5 million.
TechnologyOne also boasted of continuing to dominate in the local government sector, closing 40 major deals with more than $45 million in total contract value. It has over 300 council customers.
The business reported that expenses only increased by 3% to $216.5 million. This helped reported profit before tax grow by 8% to $82.5 million whilst underlying profit before tax grew by 13% to $86.1 million. However, it did invest $68.1 million before capitalisation (up 13%). This is 22% of revenue.
TechnologyOne reported cash flow generation of $66.4 million, which was an increase of 49%. This helped increase the cash balance on the balance sheet by 19% to $125.2 million.
Reported profit grew by 8% which was impacted by a once-off increase in legal provisions due to an unexpected judgement against TechnologyOne in a civil employment case.
The board of TechnologyOne decided to increase 8% to 12.88 cents per share which reflected its confidence about the future.
TechnologyOne said: “Our Global SaaS ERP solution is transforming our customers’ business and makes life simple for them. When COVID-19 hit, out solution enabled our SaaS customers to seamlessly shift to remote working. COVID-19 has reinforced the significant value proposition of our Global SaaS ERP solution which provides mission critical systems and enables our customers’ staff to work on any device anywhere, any time, seamlessly without interruptions. This has also resonated strongly with the market driving our continuing strong results.”
TechnologyOne generated 19.6 cents of earnings per share (EPS) in FY20, so it’s priced at 46 times the earnings made in FY20. It isn’t cheap, but it could be a decent option for growth over the coming years. But there are other ASX growth shares that I prefer more like Pushpay Holdings Ltd (ASX: PPH) which is growing faster with stronger operating leverage.