5G in the UK: what are the top stocks to watch?
It is early days for 5G in the UK, but there is no denying that the next generation of wireless technology will be revolutionary. We look at the top ten UK stocks set to benefit from the roll out of 5G.
What is 5G?
5G is the next generation of wireless technology, following on from 2G, 3G and the 4G that most of us use today. It will be up to 100 times faster than current networks, offering speeds of up to ten gigabytes per second (gbps). It will offer greater capacity, allowing more smart devices to connect to the network, and it will provide the low latency needed for the likes of an autonomous car to react in near real time, with 5G allowing devices to respond in as little as one millisecond.
Our mobile phones are the first devices that are beginning to benefit from the rollout of 5G by bringing us faster connectivity. But 5G is about much more than just being able to download films or scroll through social media at a quicker pace, and is expected to revolutionise a number of industries ranging from healthcare to manufacturing, as well as unlock a number of technologies like artificial intelligence and machine learning.
5G in the UK: what you need to know
The UK government has said 5G could deliver ‘significant economic benefits from the digital transformation of many sectors’. The Conservatives put 5G high on their list of priorities in the last general election and said it was aiming to have the majority of the population connected to 5G by 2027.
5G is being rolled out in tandem with superfast full-fibre broadband, which allows drastically faster broadband connections than traditional copper lines.
The two complement one another and full-fibre broadband is at a more advanced stage of being introduced, partly because it is needed for a 5G network to be effective. The UK government is aiming to have 15 million premises hooked-up to full-fibre by 2025 and for nationwide coverage by 2033.
These four companies own and manage the majority of the UK’s mobile communication infrastructure, and will have to invest significant sums to introduce 5G across the country. The government has said the ‘mobile network operators will be central to 5G’s successful delivery’.
BT Group has the additional responsibility of introducing faster broadband thanks to its ownership of the UK’s national broadband network Openreach, competing against Sky, Liberty Global’s Virgin Media, TalkTalk and a number of other smaller providers.
It is worth noting that Telefonica’s O2 and Virgin Media announced they intended to merge earlier this year so it could provide a package of TV, mobile and broadband to better compete with the likes of BT.
These companies are having to invest heavily to install the equipment needed for these technologies to work. For example, faster broadband entails replacing copper wires with fibre optic cables that can transfer data quicker, while 5G needs a lot more infrastructure than 4G because it needs to run on higher radio frequency bands to deliver faster speeds.
According to Deloitte, there will need to be three to ten times as many sites and masts to run 5G compared to the existing 4G network. Companies are expected to invest huge sums into these networks, but they will not reap the reward of them for many years to come.
UK bans Huawei from 5G network
Much of the extra equipment and infrastructure needed to introduce 5G, such as radio access units, is supplied by just three companies in the UK: Finnish firm Nokia, Sweden’s Ericsson, and Chinese outfit Huawei.
However, that slim choice has been cut down further after the UK government banned Huawei from supplying any 5G equipment.
Huawei is by far the largest provider of 5G equipment in the country (and the world) and the ban means that UK telecoms companies will not be able to purchase any new gear from the company beyond the end of 2020. They will also have to remove all existing Huawei equipment from their networks by 2027.
How much will 5G and full-fibre cost to implement in the UK?
The UK government has said it will cost around £30 billion for the full roll-out of full-fibre broadband, while the cost of 5G will be lower thanks to the fact it is building on top of the existing network. But it will still be costly. A government review in 2018 said deploying an extra 200,000 sites, enough to provide 5G coverage in ‘most urban areas’, would be around £3 billion, and said it expected mobile network operators to collectively spend about £1 billion per year on 5G infrastructure. The Huawei ban will only delay the introduction of 5G and add to the costs. The UK government admitted that replacing all existing Huawei equipment would cost up to £2 billion alone, and could delay the full introduction of 5G by up to two years.
How to trade 5G stocks
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Top ten 5G stocks listed in the UK
Below is a list of UK-listed stocks that are involved in bringing 5G to the UK, such as BT Group and Vodafone, but also a number of other stocks that contribute to 5G in other ways, such as making the chips needed for devices to connect to one another.
- BT Group
- Spirent Communications
- XP Power
- BATM Advanced Communications
- Telit Communications
- Bigblu Broadband
- Trackwise Designs
- Ethernity Networks
You can read more about the best 5G stocks to trade from around the world, not just the UK, here.
BT Group is the largest player in the UK when it comes telecoms. It owns the largest 5G network in the country, EE, and it owns the UK’s national broadband infrastructure, Openreach, which it still owns even if it was legally separated from the business back in 2017. The fact full-fibre is an enabler of 5G means BT Group does have an edge over its rivals because it has significant exposure to both, with other mobile and broadband providers having to piggy-back off its networks. BT already provides 5G to over 100 towns and cities.
Although BT is the natural leader in the UK due to its unique position in the market, this also means it has the biggest responsibility. The company is having to invest billions into both full-fibre broadband and 5G, and is facing increased competition after years of being accused of holding a monopoly in the UK.
This forced it to suspend its dividend for the first time in nearly ten years and payouts won’t return until 2022 at the earliest.
Vodafone is the other major mobile network operator listed in the UK, although it is a very different company to its rival BT because it is more focused on Europe rather than the UK.
In fact, the UK only generates 15% of revenue and 10% of adjusted earnings, with Germany being by far its largest market following the acquisition of Liberty Global’s European assets last year. It has already launched 5G services in over 100 cities across eight European countries. Vodafone has said its 5G strategy is based around ‘co-leadership’, whereby it will aim to match the rollout speed to the leader in each country.
The hurdle for Vodafone is that it has a huge pile of debt after splashing out on the Liberty Global deal, which is not ideal when investment in 5G and other services will remain high for the foreseeable future.
Spirent Communications is a company benefiting from the move to faster connectivity. The company tests 5G and broadband connections and devices, which is in demand as the market introduces new products and services. Its Networks and Security division, which tests Wi-Fi and ethernet connections, accounts for over 60% of revenue, while its Lifecycle Service Assurance unit uses automation and analytics to identify problems in networks and products. It also has a small Connected Devices division that helps companies with wireless networks.
5G is big business for Spirent. Its security solutions and testing services are benefiting as countries introduce 5G, and the fact it serves companies around the world means it can reap rewards even if roll-outs are delayed in one country or region.
XP Power is predominantly known for designing and making power control solutions, such as converters that allows high-voltage electricity from the central transmission network to be reduced and used by a household or business.
It has three key units, one providing power products for automated equipment designed for industrial and factory use, another providing products for medical equipment, and a third supplying companies that makes semiconductors and other chips for the communications sector.
XP Power has said its business supplying semiconductor manufacturers has ‘highly attractive growth prospects which are being driven by the growth of Big Data, Artificial Intelligence, autonomous vehicles, the Internet of Things and the roll out of 5G’.
Quite simply, 5G means more digital products entering the market – whether that be an automated machine in a factory or a smart device in the home – which means more products will be needed to power them.
BATM Advanced Communications
BATM Advanced Communications is a company with two distinct business, one of which that provides cyber security, software and hardware to the telecoms industry. It recently developed the NFVTime operating system, a high-capacity networking platform that helps networks utilise 5G and edge computing.
BATM said the platform, developed by its subsidiary Telco Systems under a joint agreement with chipmaker Arm, can ‘effectively scale down the cost of deploying services [for network operators] while increasing system performance to levels not seen by other platforms’ following a trial with Vodafone. BATM’s other, slightly larger division focuses on biomedicine, supplying diagnostic equipment and services to the medical and pharmaceutical industries.
Telit Communications makes components needed for smart devices and internet of things (IoT) devices to connect to networks, and provides platforms for them to operate on. Telit’s strategy is focused on the evolution of products and devices in a world of faster connectivity and creating the next generation of modules, routers, gateways and other products and services that are needed to run them.
Its existing position in 4G and other technologies makes it a natural partner for many looking to make 5G-enabled devices, and the fact 5G will lead to more smart devices entering the market should only boost demand for Telit’s products and services.
Bigblu Broadband provides internet connectivity using satellites. This means homes and businesses in hard to reach places, often underserved by traditional broadband and mobile phone providers, can access fast internet services regardless of where they are located. 5G will be regarded as a threat to the company as many expect 5G to be a more effective way of providing internet connectivity to rural areas, which could diminish its appeal.
However, Bigblu is embracing 5G and says ‘existing fixed wireless customers are already being connected to fixed 5G type services’. Plus, as more people get used to faster broadband then demand for Bigblu’s service could increase as it highlights the need for faster connectivity.
Trackwise Designs manufactures circuit boards that are used in antennas and other communication products, allowing all the different components in a device to interact with one another. It has its own patented manufacturing process for circuit boards named Improved Harness Technology (IHT), which is being rolled out to meet increased demand from electric vehicles, aerospace and healthcare markets.
It says its growth targets for IHT is ‘based on the sustained foundation of profitable supply of RF products in support of 4G and 5G network deployment’. Its first order for IHT was made earlier this year by a UK-based maker of electric vehicles, which is using it to produce circuits that go into the vehicle’s battery.
Filtronic makes wireless radio frequency communication products, antennas and transceivers that it supplies to original equipment manufacturers (OEMs) and mobile telecoms companies around the world. It is banking on 5G deployment driving growth, and is a ‘key supplier’ of transceiver modules to the European Union’s ‘5G XHaul’ that is looking at ways of rolling-out the technology.
The company saw triple-digit growth in 5G XHaul sales in the year to the end of May 2020, driven by demand for its Orpheus platform, a high-capacity transceiver.
Ethernity Networks has developed software that provides networking, data processing and security services to telecoms companies and cloud computing firms. It says its suite of products ‘facilitate the deployment of edge computing, 5G, [and] IoT.’
These can be used in semiconductors, which can be reprogrammed after being created to meet whatever need is necessary. The company has said the mass deployment of 5G would allow it to ‘fulfil its goals’ and allow ‘large scale growth in the coming years’.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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