2 cheap ASX tech shares

Simonelle Mody | Morningstar Australia

The Australian tech sector fell sharply in the first quarter of 2025, as investors were overly optimistic about the potential of generative artificial intelligence, as well as the re-election of President Trump.

We believe this overoptimism set the stage for the abrupt fall, triggered by uncertainty from Trump’s tariffs and other policies.

Resiliency to these shocks and future shocks varies in the Aussie tech sector. Below are our top moated picks that currently screen as significantly undervalued.

SiteMinder Limited SDR ★★★★★

• Moat: Narrow
• Fair Value: $10.00
• Last Price: $4.40 (as at 16/05/25)
• Price to Fair Value: 0.44 (Undervalued)
• Fair Value Uncertainty: High

SiteMinder is the world’s largest open hotel commerce platform that unlocks the hotels and other accommodation businesses in an all-in-one hotel management software.

Shares are down 20% over the last 12 months as other travel companies report softening demand, despite its businesses remaining relatively unaffected. Notably, SiteMinder was the only travel-related company with positive revenue growth during the last tough macro-environment following the onset of the COVID-19 pandemic.

Trading update

The company’s recent trading update was in line with our fiscal 2025 forecasts and demonstrated resilience by guiding for an accelerated annual recurring revenue (“ARR”) growth in second-half fiscal 2025.

Accelerating growth

Analyst Roy Van Keulen predicts narrow-moat SiteMinder will take significant market share within the hotels industry through scale-based cost advantages and increased penetration of its existing product suite.

Van Keulen also expects new products to be significant growth drivers, especially Channels Plus, which aggregates several smaller channels into a single channel. This will see rapid adoption among existing customers and help attract new ones.

Currently market share sits in the mid-single digits, but the company is still a leader in its space and has twice the share of its closest competitor. The ‘take rate’ – a portion of the total transaction amount that a platform collects as revenue for enabling transactions between third parties - is expected to increase through adoption of transaction-based products.

Customer base

SiteMinder’s customer retention metrics reflect its switching-cost based economic moat. Monthly revenue churn – the way in which tech companies define the value of monthly recurring revenue attributed to customers who terminate their contract in a specific month – is about 1%, implying an annual 12% churn.

This is broadly in line with other moated SaaS companies that have customers of comparably low quality and therefore also have relatively high churn, due to the higher business failure risk in their respective industries.

How do the shares look?

Our fair value estimate for SiteMinder is $10, implying an enterprise value/sales multiple of 13 on our fiscal 2025 estimates.

The company’s balance sheet is sound with a net cash position of $34 million at end of December 2024. We forecast for a 21% revenue compound annual growth rate over the next decade. An EBIT margin expansion to 19% by fiscal 2034 is expected which is an improvement on 2024’s negative 13% margin.

We think the market underestimates the adoption of Channels Plus and overestimates the strength of competitors. SiteMinder is a well-positioned industry leader in terms of market share and products and is likely to win its large market opportunity through the consolidation around scaled providers.

PEXA Group Limited PXA ★★★★

• Moat: Wide
• Fair Value: $17.25
• Last Price: $12.18 (as at 16/05/25)
• Price to Fair Value: 0.71 (Undervalued)
• Fair Value Uncertainty: High

PEXA Group Limited (“PEXA”) is a world-leading digital property exchange and data insights business. The firm assists lawyers, conveyancers and financial institutions, to lodge documents with Land Registries and complete financial settlements electronically.

The group’s share price has been hampered with negative sentiment after a move into the United Kingdom has faced scrutiny from investors, with significant capital being sunk into expansion efforts.

Trading update

Prior operating guidance was reaffirmed in the latest trading update, however, the company is undergoing a business review which might result on noncore operations being disbanded or sold. The company’s digital growth segment is a candidate for this, as well as the expansion efforts into the UK.

UK expansion

The Australian business enjoys co-ownership by the country’s largest banks with a legal mandate from state governments to move to e-conveyancing, helping to drive adoption.

This supportive environment is not present in the UK; therefore, the firm will have to invest heavily in product development, sales and marketing to drive adoption. The strategy here is to grow its network by starting with transactions that require fewer stakeholders and then moving up the chain.

We believe attributing significant negative value to the expansion is excessive and think that PEXA will eventually successfully establish itself in the UK market, or alternatively, make a strategic withdrawal before incurring any moat-dilutive expenditures.

Since entering the market, PEXA’s well developed platform has already integrated its platform with the Bank of England and around a dozen banks and conveyancing firms.

Australian monopoly

In the domestic sphere, the exchange business is used for the settlement and lodgement of around 90% of property transactions in Australia with little competitive threat.

Wide-moat PEXA is primarily supported by network effects that bring the numerous parties of property transactions onto one common digital platform, creating a pull-effect across the ecosystem.

The company is also a virtual monopoly with around 99% market share of digital transactions and close to 90% market share of total transactions. The remaining market share consists of paper-based conveyancing in smaller jurisdictions who we expect will eventually move to PEXA’s platform as well.

How do the shares look?

We assume revenue grows at a compounded annual growth rate of 12% over the next decade. Given that PEXA’s Australian exchange business is near saturation, we forecast it to grow pricing in line with CPI and most of its growth to be driven by the UK expansion.

Shares for wide-moat PEXA currently screen as materially undervalued. Our fair value estimate for PEXA is $17.25 per share implying an EV/EBITDA multiple of 39 on our fiscal 2025 estimates.

Although this near term multiple may appear given Australian revenue growth is linked and therefore constrained by the Consumer Price Index, we believe this does not represent the true value of the business given heavy investment into expansion efforts.

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All prices and analysis at 16 May 2025.  This information has been prepared by Morningstar Australasia Pty Limited (“Morningstar”) ABN: 95 090 665 544 AFSL: 240 892.). The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.