Guess which ASX 200 tech stock has just been upgraded

Now could be the time to pounce on TechnologyOne Ltd (ASX: TNE) shares.

That’s the view of analysts at Bell Potter, which have just upgraded the ASX 200 tech stock.

What did the broker say about this ASX 200 tech stock?

Bell Potter has been looking ahead to the release of the company’s half-year results in May. The good news is that the broker is expecting a strong result from the enterprise software provider.

It highlights that the net revenue retention (NRR) metric will be a major focus for the market with these results. That’s because this will be the first result that its NRR metric hasn’t been boosted from its customer base transitioning to subscription plans. Bell Potter commented:

The NRR in each of the last two years has been >115% which is strong and above the industry average but a reasonable portion of the average additional revenue per customer has been generated through SaaS flips (where customers pay around twice what they were paying before).

SaaS flips were largely completed, however, by the end of FY23 so will provide little boost to NRR in FY24 and the $64m question is whether Technology One can maintain an NRR of around 115% or more without these flips.

Bell Potter believes the ASX 200 tech stock can continue this trend in FY 2024 and beyond, which it expects to go down well with the market. It said:

Our view is it can through a combination of other drivers […] and such an outcome in 1HFY24 (and beyond) would be well received by the market in our view given it implies or suggests the outlook remains positive and the company can double revenue every five years or so via organic growth alone.

These drivers are expected to include inflation, more products and modules, its SaaS+ offering, the upgrade to CiA fourth generation software, and the recent launch of DXP LG.

Upgraded to a buy rating

According to the note, the broker has upgraded the ASX 200 tech stock to a buy rating with an improved price target of $18.50.

Based on its current share price of $16.50, this implies potential upside of approximately 12.1% for investors over the next 12 months.

Bell Potter also expects a modest 1.3% dividend yield to boost the total potential return to almost 13.5%.

The post Guess which ASX 200 tech stock has just been upgraded appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Technology One. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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