“They may have promised to burn $11 million to hire 50 new staff, but they spend $10.5 million. [The reduced spend] will look positive – but actually, they only managed to hire 35 people. I think the risks aren’t where you will expect.”
In the most recent earnings season, wage pressure was a common issue cited by listed tech companies as a challenge.
Pushpay, Bravura Solutions, Hansen Technologies, Mach7 Technologies and Nuix all cited tough labour market conditions in their February results announcements.
Financial software solutions provider Bravura said to retain its “key resources” and attract the best talent, its employment costs had leapt 10 per cent per full-time employee.
Pushpay stated that staff costs had risen higher than it had expected, while Mach7 said it expected its operating expenses to jump in the second half of the 2022 financial year from “salary actions taken to retain talent”.
Nuix also stated the market for engineers remained “very tight” and it, too, had been forced to lift employee retention and recruitment costs.
RBC Capital Markets head of Australian equity research Garry Sherriff said he expected wage costs to be materially higher for technology companies over the next 12 months.
“We haven’t seen the margin compression come through as yet in the technology sector, but we think it’s a risk going into the August reporting season and the following February 2023 reporting period,” he said.
“Our analysis on the tech space shows that average wage costs over the last six months were about 15 per cent higher than 12 months earlier, yet we didn’t see material changes in margins.
“They remained broadly flat on average, which implied sales still grew at a strong pace over the last six months.
“However, we think wage growth as a percentage of sales will be higher in the next six to 12 months.”
According to Mr Sherriff’s analysis, the biggest wage increases from listed tech companies considered by RBC came from Megaport, Infomedia and Nearmap.
But, the companies he thought had the highest labour market risk were Altium, Appen, Nearmap, Pushpay, Megaport, Xero and Hansen.
“We are only early in the first innings of wage inflation in the Australian technology sector, it hasn’t really bitten yet in the reported numbers, but that is likely to change over the next 12 months in our view,” he said.
Financial services software company Iress announced in its half-year results that from January it was giving all permanent employees and fixed-term contractors the ability to take an extra six leave days a year for free, so long as they were taken on a Friday or a Monday.
The business, Mr Cooper said, was also taking up to $30 million of development costs “below the line” in the next two years, a first for an ASX-listed software company, and he expected there would be wage expenses hidden in this figure.
“It’s just extraordinary. They’re saying don’t worry about this $30 million of costs, we’ll just park it,” he said.
“But, this is something that everyone is in the same boat about. Nitro, for example, could take three months longer [to deliver on] its road map [if it can’t hire enough staff], but [its competitor] DocuSign probably would as well.”
Mr Cooper said, ironically, it was the low-growth, profitable tech stocks he was most cautious about, the tech companies that had been the least affected by the sector-wide sell-off in the past six months.
“That’s where everyone has been hiding because of interest rates,” he said.