Balancing Steady ARR and FCF Growth with Cautious Revenue Projections – TipRanks Financial Blog

Goldman Sachs analyst Mohammed Moawalla has maintained their neutral stance on TMNSF stock, giving a Hold rating yesterday.

Geoff Meacham has given his Hold rating due to a combination of factors related to Temenos’s financial outlook and strategic movements. Temenos’s fourth-quarter results were consistent with previous announcements, but their forecast for revenue growth in fiscal year 2024 was somewhat disappointing as it fell short of market expectations. Although earnings before interest and taxes (EBIT) projections aligned with estimates, the projected total software licensing (TSL) growth of 7-10% was notably below the anticipated range. Despite these softer revenue projections, Temenos maintains strong expectations for annual recurring revenue (ARR) and free cash flow (FCF), aiming for significant growth in both.

During the quarterly conference, Temenos’s management provided a more detailed outlook, highlighting a robust growth in Software as a Service (SaaS) revenues but a sharp decline in term licenses due to a strategic shift towards subscription models. Service revenues are also expected to increase with higher profitability. While the sales environment is predicted to remain stable, the company’s cautious stance on the macroeconomic environment is reflected in their TSL guidance. Additionally, in light of concerns raised by a short-seller report, Temenos announced an intention to conduct a third-party review. With a Capital Markets Day event on the horizon, stakeholders are anticipating further insights into the company’s EBIT growth, macroeconomic conditions, competitive landscape, transition in pricing models, and the pipeline for decision-making.

In another report released yesterday, Jefferies also maintained a Hold rating on the stock with a CHF67.00 price target.

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Temenos (TMNSF) Company Description:

Temenos AG is a holding company, which engages in the development, marketing, and sale of banking software systems. It operates through the Products and Services segments. The Product segment markets, licenses, and provides software solutions and subscription arrangements. The Services segment offers consulting and training activities. The company was founded by George Koukis in 1993 and is headquartered in Geneva, Switzerland.

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