Evaluating Technology One’s Valuation As Index Exit And Hyperion’s Sell-Down Shift Market Support

Technology One (ASX:TNE) is back in focus after S&P Dow Jones Indices announced its removal from the S&P/ASX 50, together with Hyperion Asset Management ceasing to be a substantial shareholder, prompting fresh questions around index-linked support.

See our latest analysis for Technology One.

Despite the index removal and Hyperion’s reduced holding, Technology One’s share price has recently pushed higher, with a 20.66% 1 month share price return lifting it to A$27.33. Its 3 year total shareholder return of 92.51% and 5 year total shareholder return of 223.17% point to strong longer term compounding, even with a 4.11% 1 year total shareholder return decline and a softer 1 day and 90 day patch earlier in the year.

If this shift in index status has you reassessing your tech exposure, it could be a good moment to look at our list of 35 AI infrastructure stocks as another way to source ideas in the broader software and infrastructure space.

With Technology One now outside the ASX 50, a 1 year total shareholder return decline, and a recent share price rebound, you have to ask: is this still an overlooked compounder, or is the market already pricing in future growth?

Most Popular Narrative: 15.2% Undervalued

With Technology One closing at A$27.33 against a narrative fair value of A$32.23, the current setup hinges on how much growth and margins can stretch from here.

The market may be excessively pricing in rapid, sustained ARR (annual recurring revenue) and margin expansion due to strong SaaS+ adoption, underestimating the risk of intensifying competition and regulatory headwinds that could slow customer wins, elongate sales cycles, or pressure pricing, ultimately impacting future revenue growth and margins.

Read the complete narrative.

Curious what sits behind that growth and margin story? The narrative leans on specific revenue compounding, richer profitability, and a premium future earnings multiple. The exact mix might surprise you.

Using an 8.29% discount rate, the most followed narrative pieces together expected revenue growth, firmer margins and a future P/E that stays well above the broader Australian software group to land on its A$32.23 fair value.

Result: Fair Value of A$32.23 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, there are still key risks, including tougher global and AI driven ERP competitors, as well as rising cybersecurity or data privacy compliance costs that could pressure margins and growth assumptions.

Find out about the key risks to this Technology One narrative.

Another Angle: High Multiple, Different Story

Our DCF based fair value of A$14.20 paints a very different picture to the A$32.23 narrative fair value. On this view, Technology One at A$27.33 screens as overvalued, not undervalued. It raises a simple question: which set of assumptions do you think is more realistic?

Look into how the SWS DCF model arrives at its fair value.

Next Steps

With the article leaning on both upside potential and caution, it makes sense to check the numbers yourself and decide quickly where you stand. To see what the market is optimistic about, take a look at the 2 key rewards.

Looking for more investment ideas?

If this story has you thinking more broadly about your portfolio, now is the time to line up fresh ideas rather than wait for the next headline.

• Spot potential value opportunities early by checking companies that appear as 7 high quality undervalued stocks and see which ones match your return and risk preferences.
• Strengthen your core holdings by reviewing stocks in the solid balance sheet and fundamentals stocks screener (17 results) that pair financial resilience with fundamental support.
• Hunt for potential future leaders hiding in plain sight by scanning the screener containing 13 high quality undiscovered gems before they attract wider attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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