On Wednesday, Technology One Ltd (TNE:AU) stock received an upgrade from UBS, with the investment firm shifting its stance from Neutral to Buy. The software company also saw its price target increase to AUD21.90, up from the previous AUD17.20.
The upgrade by UBS is based on positive customer feedback within key demographics, which bolsters the firm's confidence in Technology One's ability to maintain its net revenue retention (NRR) target of 115-120% per annum. UBS has identified several factors that support the company's NRR, despite the anticipated unwinding of benefits from SaaS flips.
Firstly, Technology One's Digital Experience Platform (DXP) has been highlighted as a significant driver, as it allows the company to extend its reach to the end-users of its clients, such as ratepayers of a council.
Secondly, the SaaS+ model, where Technology One waives initial product implementation fees in exchange for a higher annual recurring revenue (ARR) over the customer's lifecycle, is seen as a positive move.
This model also promises to reduce the time needed for implementation. Lastly, UBS notes the potential of Technology One's 4th generation enterprise resource planning (ERP) product, CiA, which offers an improved user experience.
UBS also positions itself modestly ahead of the consensus with its forecasts. The firm's projections for Technology One's ARR are 4-7% higher than the consensus estimates for the fiscal years 2026 to 2028. Additionally, UBS anticipates profit before tax (PBT) to be 2-5% above consensus predictions for the same period.
The upgrade and the new price target reflect UBS's optimistic outlook on Technology One's growth prospects and its strategic initiatives to sustain and expand its revenue base in the coming years.
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