Broker names 3 of the best ASX tech stocks to buy in FY23
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If you want to invest in the tech sector, you can consider the three ASX tech stocks listed below.
These three stocks have been named Bell Potter’s top picks in the sector for fiscal year 2023. Here’s what the broker says:
The first share of ASX technology that Bell Potter rates highly is location technology company Life360. Although the broker acknowledges that the company is not yet profitable, it believes investors should look beyond it due to its explosive growth, strong balance sheet and positive cash flow outlook next year.
Life360 develops and offers a mobile application for families – called Life360 – which provides communications, driving safety and location sharing. The company adopts a freemium model to attract customers, but has managed to convert some of these customers into paying subscribers over the past few years by providing valuable features. The company also recently made two acquisitions – Jiobit and Tile – so now it not only connects and protects people, but also pets and things. Yes, Life360 is currently not profitable, but is expected to be cash flow positive from operations as of 4Q2023 and have more than enough cash to fund operations until then.
Bell Potter has a buy rating and price target of $7.50 on shares of Life360.
Another piece of ASX tech Bell Potter is considering a new fiscal year buy is document productivity company Nitro Software. Like Life360, the broker expects Nitro to break even in cash flow next year and have enough cash to sustain it until then.
Nitro is a global document productivity software company that enables digital transformation in organizations worldwide through a suite of products designed to enable digital workflows. The company has managed to shift its revenue model from perpetual to subscription and the latter – which is recurring – now accounts for around two-thirds of total revenue. The company also recently acquired a leading e-signature company called Connective, which now positions Nitro as the world’s third-largest player in the corporate e-signature market. Yes Nitro is also not currently profitable, but is expected to break even in cash flow at 2H2023 and has more than enough liquidity to fund its operations until then.
The broker has a buy rating and a price target of $2.50 on shares of Nitro.
A final tech share to buy according to Bell Potter is TechnologyOne. Unlike others, it is a highly profitable enterprise software company. And thanks to its continued shift to a software-driven business model, it should become even more profitable in the future.
Bell Potter said:
Technology One is an ERP (enterprise resource planning) software provider for large enterprises and government agencies in Australia, New Zealand, Asia Pacific and the UK. The main competitive advantage of the company is that it has developed a fully integrated SaaS solution of its software and is now switching its customers to this solution. The migration is now about three quarters complete and Technology One is beginning to reap the benefits of higher recurring revenue and a higher margin. This combination will, in our view, result in double-digit earnings growth for years to come and as customer migration approaches 100%, we expect the multiple to re-evaluate to that of a pure business. SaaS.
Bell Potter has a buy rating and price target of $12.50 on shares of TechnologyOne.
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