Investment case: TechnologyOne

What makes the company different

TechnologyOne specializes in software for government, education, and healthcare verticals, offering an all-in-one solution instead of multiple separate systems. Its products cover 80% of industry needs out of the box, saving customers over 30% in costs.

Unlike competitors, it provides full enterprise software on any device, anywhere. Its simple, user-friendly design sets a new industry standard, giving it a strong competitive edge and market leadership.

Resilience and recurring revenues

TechnologyOne is resilient for two key reasons: 68% of its revenue comes from recurring subscriptions, providing steady income, and it has a 99%+ customer retention rate, as its mission-critical software makes switching providers difficult.

Management

At SilverCross, we value shareholder alignment. As founders and co-portfolio managers, we have invested our own capital in the fund. We also seek companies with strong insider or family ownership, as they tend to prioritize long-term success over short-term results.

TechnologyOne reflects this approach. When we first invested in 2020, the founder and chairman Adrian Di Marco held about 6% and one of TechnologyOne's founding shareholders, John Mactaggar, about 8%. Adrian Di Marco unfortunately announced his retirement as Chairman in 2022 after a 35 year tenure. His retirement was carefully planned with the current CEO Ed Chung taking over as CEO in 2017 after already 10 years with the company. Pat O'Sullivan was brought in as deputy chairman in March 2021 before replacing Adrian as Chairman on his retirement in June 2022.

Entry barriers, market share and pricing power

TechnologyOne’s software is mission critical, making it costly and difficult for customers to switch. High switching costs create a strong barrier to entry, leading to a 99%+ customer retention rate.

TechnologyOne is the market leader in enterprise SaaS in its sectors. For example, its software supports a significant portion of local governments in Australia and New Zealand with over 70% of residents living in areas where the local council uses TechnologyOne's solutions. Its simple, user-friendly interface, accessible on any device, combined with a constant focus on innovation, is a key driver of its success, driving market share gains even against giants like Oracle, SAP, and Microsoft. 

Growth prospects

TechnologyOne plans to double its revenue every 4–5 years, with cloud and recurring revenue expected to grow at 15%+ annually. This growth will come from four main areas: gaining 25–50 new customers each year, selling more products to existing customers, converting on-premise clients to the cloud, and expanding in the UK, which is three times the size of the Australian market.

The company also expects its profits to grow faster than sales, aiming for a 35%+ profit margin (up from 27% when we first invested). This will be driven by more cloud revenue, slower growth in R&D costs, and the UK business growing its profitability as it scales.

ESG

At SilverCross, we seek to invest in companies whose core product or service has a net-positive impact on society. TechnologyOne’s software helps businesses become more efficient and reduce waste, like cutting over-production and unnecessary transportation. It also reduces paper use by offering mobile solutions for tasks like library or equipment requests.

The company is committed to sustainability, working to be Climate Neutral and reducing energy use. Its e-waste program helps recycle old equipment and supports local communities.

In 2016, TechnologyOne created the TechnologyOne Foundation, aiming to lift 500,000 children out of poverty. It joined the '1% Pledge' corporate philanthropy movement and so will donate 1% of profits, products, and employee time to charity, which aligns with global sustainability goals.

Investment case

TechnologyOne was on our radar for a while, but valuation kept us from investing. In early 2020, its share price dropped 32% due to market panic from COVID-19, creating an attractive entry point.

At SilverCross, we try to take a step back during these times of panic to assess the long-term outlook for a business rather than the short-term impact of an event. We saw TechnologyOne’s cloud transition as a challenge in the short term but a big long-term advantage, making the business more agile, scalable, and better at cross-selling products. The pandemic also accelerated digital adoption in government sectors, benefiting TechnologyOne. With strong innovation and high-margin cloud growth, we believe it can continue doubling in size every 4–5 years and we hope to remain shareholders for years to come.