TNE - Technology One

[galumay]

I didn't think about it that way rnr, (but then i dont look at charts.) TNE has run up very hard over the last 12 months - on the back of long term excellent execution by management. It had got to the point where the market had priced it for perfection and stellar growth, when the results showed a less than stellar growth in revenue and earnings, there was the sort of market reaction I would expect. None the less I am sure there would have been buyers entering just before the release of the HY report in the expectation of a very good report, given the track record.

 

[rnr]

At last someone found where the brakes are located. Although there was a gap down at Open price finally Closed higher than Open after 4 consecutive down days.
It will be interesting to watch for a trading opportunity to develop over the next couple of days.

 

[peter2]

Results and comments from CEO. 21st May 2019

 

[peter2]

TNE happens to be one of the many I've missed out on in 2019. I've been looking through these lost opportunities to find out why and what are the lessons to be learned. #

I see the huge drop after news on the 21st May and assume the news was disappointing. I don't see how their 10th year of record profits can be disappointing. Plus, the CEO is pleased with how the company has transitioned to a successful SaaS business and the outlook is promising.

Is this a buy the dip opportunity? I'm thinking it may be.

#: I passed on the BO opp at 5.85 (new yearly high) in Nov 2018.
Why? Probably because the market was falling hard at the time. I didn't note that TNE was acting much stronger than the market at the time. D'oh! Read the trading plan setup checklist dummy. Don't assume you'll remember everything every week.
#: I passed on the BO opp at 6.50 (another new yearly high) in Jan 2019.
Why? I wish I knew. The market was starting to rally. No notes for that date as I started posting my WEnd reviews a few weeks later.

 

[tech/a]

Peter a lot of info in these charts

No time now but Stop $6.98
I doubt will be taken out
I expect the low to be tested though

 

[galumay]

Is this a buy the dip opportunity?

It may be Peter, I believe the share price fell so hard because there was already so much growth in earnings and revenue baked into the price. As we know sooner or later the price and value will come together and the present value of the future cash flows will be reflected.

The results disappointed Mr Market because they didn't show enough revenue and earnings growth to support the run up ahead of valuation the price had seen over the last 12 months.

My sense is that it is a good time to buy in because with such a strong business, where there has been growth every year and earnings have grown every year for 10 years, no debt, good management and a clear runway for the future, the market will not take long to become rather optimistic about its future once again. I bought the last significant dip when I got in at around the $5 mark, it wasn't cheap then and it took a fair bit of will power to buy into a business that I felt was too expensive!

I suspect it wont be so much of a trading opportunity though, it may well take a year or so for the price to get ahead of itself again, I remember it took longer than I expected last time.

 

[peter2]

A thank you to @galumay for his helpful comments regarding TNE.
Once price failed to stay below 7.00 and started going up, that was enough for me.

 

[galumay]

Cheers, Peter2 - hopefully for both of us it keeps recovering!

 

[Clansman]

It's an outstanding company and a must for any serious investor. Buy the minimal dips and it's easy money.

 

[Miner]

The emotion on stocks is a highly dangerous thing to make money.
I have had TNE bought at $1 and sold out $2 after a reasonable holding, a few years back. It emotionally hurts me to pay $7 with a PE of 39 or so, for the stock, I sold out at $2.

 

[So_Cynical]

The emotion on stocks is a highly dangerous thing to make money.
I have had TNE bought at $1 and sold out $2 after a reasonable holding, a few years back. It emotionally hurts me to pay $7 with a PE of 39 or so, for the stock, I sold out at $2.

Yes its hard to go back into anything at a much higher price, personal history is an important factor in many of life's choices.

 

[galumay]

Anchoring bias certainly pops up in many of our investing decisions!

Miner, your story is a good reminder about having the conviction to continue to hold good businesses, I have only ever sold down one of my winners, selling half of my CCP at one point. It was a mistake and one I learnt from.

Conversely I have found its much harder to sell winners quickly when either I realise my thesis for the business is incorrect or management incompetence impacts value - SGH went from a double bagger to a near total loss of capital for me because I failed to sell a winner when I should have seen the warning signs.

 

[peter2]

TNE is another good example of the benefits of being in the ASF community where the members post their thoughts about companies. Six months ago TNE was sold off hard after what looked like good results, but the result weren't better than expected and a few insto's took the opportunity to take some profits.

I posted that this was one of the charts that got away from me after I missed the chart setups in late 2018.

Is this a buy the dip opportunity? I'm thinking it may be.

It may be Peter, I believe the share price fell so hard because there was already so much growth in earnings and revenue baked into the price. . .

. . . I suspect it wont be so much of a trading opportunity though, it may well take a year or so for the price to get ahead of itself again, I remember it took longer than I expected last time.

It's been six months since @galumay 's helpful comments. Price traded in a shallow sideways pattern before breaking out of the top of the range this week after it's latest corporate news release. Price is very close to it's all time high.

Note: BO of ledge is the start (resumption) of the prior trend up and is the setup I outline in the "P2 starts another ASX portfolio" thread in the members section.

After missing out late 2018, did I buy this classic setup? Didn't have to as I got in much lower after helpful comments from other ASF members.

 

[Skate]

TNE is another good example of the benefits of being in the ASF community where the members post their thoughts about companies. Six months ago TNE was sold off hard after what looked like good results, but the result weren't better than expected and a few insto's took the opportunity to take some profits. I posted that this was one of the charts that got away from me after I missed the chart setups in late 2018.

@peter2 I've posted two charts for comparison entry points as you have discussed above..

Your explanation is spot on & reinforces why trading Breakouts as well as Pull Backs can work hand in glove, complimenting a trading plan. ASX:TNE is a perfect example to highlight this fact.

CAM Strategy
ASX:TNE - Buy bar 27/7/2018 in @ $5.034 out 11/10/2019 @ $7.17
Back in 1/11/2019 @ $7.63

HYBRID Strategy
ASX:TNE - Buy bar 7/12/2018 in @ $6.30 out 28/6/2019 @ $7.91

The yellow ribbon
Both of our charts display an Index ribbon at the bottom of the chart & my Index Filter drives my exit - some of the time & at other times it's driven by other conditions. The additional yellow "caution" ribbon shows when a position is unloved. When traders fall out of love with a position, my strategy tends to do the same.

Skate.

 

[galumay]

It's been six months since @galumay 's helpful comments.

Thanks for the comments, @peter2. I also took the opportunity to significantly increase my position in TNE.

From a fundamental point of view its one of the true compounders, when you look at the ROIIC its above 30% which is a fantastic return, the compounding rate of the business is around 11%, all of this over a ten year period. No debt and almost never put their hands in shareholder's pockets for capital.

When you find these sort of businesses they are rarely ever cheap by traditional metrics, you have to look deeper at what they are doing in terms of capital allocation and the true returns on shareholder's capital over the long term. Then if you take a position and add in the dips over time, you will tend to do very well and sleep peacefully too!

 

[Clansman]

Closed the week at $9.45 after closing the previous day at an ATH of $9.50. Appears to have been immune to the impacts of Covid 19.

 

[Trav.]

TNE getting smashed today.

Response to article below

unfortunately holding ....

 

[Dona Ferentes]

interesting for a couple of reasons
the report was dated 24 June.
GMT has a $4.65 price target on the stock.

Hong Kong-based GMT Research has distributed a confidential report titled "Growth illusion", which claims Technology One used accounting tricks to pull forward revenue and profits "artificially creating growth and hiding a major slowdown". "Overall, we estimate FY19 profits were inflated by over 200%," GMT's Nigel Stevenson wrote.

GMT said new accounting rules on revenue recognition came into force in fiscal 2019, requiring revenue to be recognised over a contract's period rather than booking it upfront. "Revenue and profits under the new rules are significantly lower," he said. The research firm said Technology One had used accounting tricks, like changing contract renewal dates, to pull forward revenue and mask "a major slowdown in the last couple of years". "Instead of reported growth of 9% and 13%, we estimate underlying revenue was flat in FY18 and grew just 1% in FY19."

Technology One posted a $76.4 million net profit before tax in the year ended September 2019, with revenue climbing 13 per cent year-on-year to $286 million.

 

[galumay]

An interesting development, GMT are not the first to raise the issue of the changes in revenue recognition and the accounting manoeuvring by TNE to compensate. I read quite a detailed report showing that it appeared to inflate the free cash flow significantly in a way that was probably misleading at best.

My analysis has the truth somewhere in the middle, I suspect GMT are tying to create a market to short into, and their numbers are patently incorrect, but I do think TNE should have been more transparent about some of the flow on effects of the changes they made, especially when it filters down to the FCF.

 

[Dona Ferentes]

Put it in a nutshell.