In Brief: TechnologyOne, Gentrack & Northern Star

This story features TECHNOLOGY ONE LIMITED, and other companies.
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The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

In Brief highlights how a quality stock attracts a premium rating while competition and expansion gnaw at a small cap and a major miner.

–Jarden sees more upside in TechnologyOne than the market
-Is Kracken's push into A&NZ markets at Gentrack's expense?
-Northern Star's share price hit by rising costs and higher capex

By Danielle Ecuyer

This week’s quote comes from Mark Zuckerberg, Meta

“Over the last few months we have begun to see glimpses of our AI systems improving themselves. The improvement is slow for now, but undeniable. Developing superintelligence is now in sight.

It seems clear that in the coming years, AI will improve all our existing systems and enable the creation and discovery of new things that aren’t imaginable today.”

Upside risk to earnings with a potential boost from AI

Jarden is the latest broker to initiate coverage of TechnologyOne ((TNE)) with an Overweight (Buy-equivalent) rating and a $44.82 target price.

For context, that is 10% higher than targets set by UBS at $42.20 and Wilsons at $40.99. The daily monitored brokers’ consensus target is $37.582, which begs the question: what does the Jarden analyst see that others apparently do not?

Scrolling through the list of positives is enough to make the CEO blush. Jarden is positively effusive about TechnologyOne, starting with the all-important qualification: the company is “one of the higher-quality companies” in the broker’s tech coverage.

The list grows to include:

-One of the best-in-class Rule of 40 financial metrics, commonly used to evaluate the performance of software-as-a-service (SaaS) and other high-growth technology companies.

The Rule of 40 equals revenue growth as a percentage plus EBITDA margin as a percentage, to come in above forty.

-Robust net recurring revenue track record.

-Pricing power, mission-critical software, and defensive end-market customers such as schools and councils.

Jarden views the total addressable market for the company to be around three to four times larger than the A&NZ markets, with the UK government trying to make up for lost ground on adoption of best-in-class tech relative to peers. Council mergers offer medium-term upside, though there are some near-term delays in procurement decisions.

Jarden expects TechOne can achieve annual recurring revenue of $1bn by FY29, a year earlier than guidance, with the company well-positioned to benefit from the launch of new, augmented AI products.

SaaS-plus is identified as offering the potential to transform TechOne by de-risking implementation and avoiding problems, thereby improving conversion to the offering. It leverages more deals through the same number of consultants by a factor of three to reduce pipeline bottlenecks and improve operating leverage.

Jarden’s net profit after tax forecasts sit around 2%-5% above consensus estimates. The often-questioned issue of the stock’s valuation is qualified by the analyst as “justified”, due to the quality, potential earnings upside risks, and de-risked earnings forecasts.

Is Kraken cracking open the A&NZ markets?

Shareholders in Gentrack Group ((GKT)) have experienced a volatile ride over the last year, with the early December share price high of $13 now firmly in the rearview mirror.

Wilsons, who remains positive on the stock, was keen to point out UK Octopus-owned Kraken had seemingly forced its way into the domestic market by scooping up one of Gentrack’s key customers.

Wilsons found the announcement disappointing (of course) and evidence, at the margin, that competition is rising for the smart meter operator. Gentrack reported an existing customer had removed it from the process to modernise that customer’s existing billing solution.

Red Energy, with around 600k customers and over 1m meter points, is thought to be the one that got away. Red Energy had been using a legacy version of Velocity (its billing platform) and had been a customer for over ten years.

Kraken also pulled in Meridian (NZ) over Gentrack after writing off their internal solution. This was the first win for the offshore competitor in the A&NZ business-to-business sector.

The analyst believes Kraken will continue to concentrate on developed markets and is operating an aggressive strategy to “do whatever it takes” to justify its valuation, which is being targeted to incentivise new capital, with the mooted sale by Octopus Energy at an estimated valuation of GBP10bn, implying a total group value of more than GBP15bn.

Gentrack, in comparison, is seeking to expand into the rest of the world, including Europe and Southeast Asia. Management reiterated FY25 guidance at the update.

Wilsons has a target price of $11.21, compared to the FNArena consensus target of $12.833, with three Buy-equivalent ratings and one Hold-equivalent.

Northern Star’s share price has dislocated from broker targets

Observing the Northern Star ((NST)) share price, which has literally fallen off a proverbial cliff from a high of $23.20 in April to around $15.50, coinciding with a -5% decline in the actual USD gold price, one is reminded just how volatile gold share prices can be.

Over the period, the FNArena consensus target price has been revised down to $19.993 from just under $23, a loss of some -15%.

For more details see stock analysis:
https://fnarena.com/index.php/analysis-data/consensus-forecasts/stock-analysis/?code=NST

In both instances, the share price reaction has far exceeded broker revisions and the underlying gold price movement as investors continue to grapple with ongoing cost challenges and negative surprises from increased requirements on capex that are still dominating the sector at large.

Canaccord Genuity raised Northern Star’s price target to $24.10 from $23.95 this week post the gold miner’s June quarter update.

Group sales for the miner were pre-reported at 444koz, up 15% on the prior quarter and in line with both Canaccord and consensus expectations. All-in-sustaining costs of $2,197/oz were slightly higher than the analyst’s forecast at $2,109/oz and consensus’ $2,147/oz.

Underlying free cash for the period at $211m was almost half of the broker’s $404m estimate, due to slightly higher costs and exploration spending, along with expenditure at Hemi and cash tax.

Net cash for the period ended at $1.01bn, with liquidity around $3.4bn and cash/bullion of $1.9bn, a rise of $794m on the prior quarter. Some $663m in cash came forth with the De Grey Mining acquisition.

Management’s FY26 guidance of 1.70–1.85Moz at all-in-sustaining costs of $2,300–$2,700/oz, which was offered earlier in the month, is higher than the broker’s and consensus forecasts by 26% and 17%, respectively.

Northern Star attributed the increased costs to ongoing sector inflation (running around 5%) as well as other higher-cost imposts like sustaining and processing capital, higher gold price royalties, and increased Pogo tariff assumptions.

Growth in capex guidance came in above Canaccord’s and consensus estimates by 47% and 21%, respectively, at -$2.13bn–$2.27bn, due to the expansion at KCGM and the Hemi development.

Canaccord remains Buy rated, while daily monitored brokers have three Buy-equivalent ratings and three Hold-equivalent ratings.

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