The technology sector has been a standout performer in the Australian stock market over the past year, with the S&P ASX All Technology index delivering an impressive 32% return. This growth significantly outpaces the ASX 200 index, highlighting the robust investor interest and optimism surrounding tech stocks.
Bell Potter's Positive Outlook
Looking ahead to FY 2025, Bell Potter remains bullish on the prospects of the tech sector. The brokerage firm attributes its positive outlook to stabilizing interest rates globally and potential future rate cuts, which traditionally favor high-growth stocks like those found in the tech industry. Bell Potter notes that while offshore markets, such as the NASDAQ, have already experienced substantial rallies in anticipation of rate cuts, the Australian tech sector has yet to see a similar surge. This anticipation leads Bell Potter to believe that a rally in Australian tech stocks, particularly among large caps, is overdue and likely imminent.
Top ASX Tech Stock Picks
Bell Potter has identified three ASX-listed tech stocks that it views favorably for the upcoming year:
- Gentrack Group Ltd (ASX: GTK)
- Bell Potter emphasizes Gentrack's strong position in the billing technology sector, particularly in specialized energy and water utilities. The company generates 85% of its revenue from recurring sources, positioning it well for future growth amidst trends in distributed energy and decentralized storage.
- Despite trading at high multiples (c.40x FY24 and c.30x FY25 EV/EBITDA), Bell Potter believes Gentrack's valuation is justified due to its substantial growth opportunities and margin expansion potential.
- REA Group Ltd (ASX: REA)
- Bell Potter has set an AU$203.00 price target for REA Group, the owner of realestate.com.au. The firm is optimistic about REA's medium and long-term growth prospects, particularly in its ability to sustain higher capital expenditures for platform development compared to competitors.
- The brokerage sees promising signs of market penetration in India's residential property listings, further bolstering REA Group's growth narrative.
- TechnologyOne Ltd (ASX: TNE)
- TechnologyOne, an enterprise software provider, has caught Bell Potter's attention due to its transition to a software-as-a-service (SaaS) delivery model. This shift has led to predictable and recurring revenue streams, akin to industry leaders like WiseTech and Xero.
- Bell Potter forecasts potential for further valuation increases for TechnologyOne, citing its robust growth outlook and the ongoing re-rating of its price-to-earnings ratio (PE) from c.30x to c.40x, with potential to reach c.50x.