Top UK tech stocks to watch
We outline some attractive UK tech stocks from the FTSE 100, FTSE 250 and AIM.
Top UK tech stocks
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We’ve taken a look at some popular UK tech company stocks across different markets within the London Stock Exchange.
These tech stocks are not necessarily the biggest risers or largest by capitalisation, instead they are companies that have seen volatile movements in their share price or posted strong gains over the past 12 months:
FTSE 100 technology stocks
Ocado Group is predominantly known for its online grocery operation. The firm doesn’t have any stores and ships goods it procures from Waitrose from its warehouses to the customer’s door. From September 2020, however, it will end the 20-year relationship with Waitrose in favour of one with Marks & Spencer, which has bought half of the grocery business.
However, the company also has a digital grocery platform and technology that automates retail warehouses. It licenses this technology out to a number of leading supermarkets from around the world and assists them with their online, storage and distribution. This includes Morrisons in the UK, Groupe Casino in France, ICA in Sweden, Coles in Australia, Kroger in the US, Sobeys in Canada and Aeon in Japan.
It is still early days for Ocado’s tech business. The company still generates three times more revenue from its online grocery operation than its tech division, and it’s still loss-making overall. Still, it is becoming a vital partner for major retailers looking to automate and digitise their businesses and has plenty of room to grow considering its tech can be used by more industries than just groceries.
Halma is an acquisition-led business that buys companies, invests in them and helps them grow. This brings together often niche businesses under one umbrella to provide support and faster growth. It usually keeps existing management of any company it buys in place and gives it what it needs. This includes boosting their exports from its key hubs in the US, China, Brazil, India and the EU or providing the tech it needs.
It has at least 44 companies on its books, many of them led by technology. Its portfolio is comprised of businesses providing everything from gas detection and elevator safety systems to environmental monitoring tools and medical devices.
Halma is an attractive stock for several reasons. It is a diversified company in terms of both products and geography, has delivered reliable growth and profitable. Plus, it has increased its dividend by over 5% annually for 40 consecutive years.
FTSE 250 technology stocks
Kainos Group provides IT, consulting and software services to businesses, governments and healthcare providers. This can involve everything from data analytics and artificial intelligence to cyber security and cloud computing. It is also the go-to consultancy for Workday software, with its Kainos Smart software automating testing to help save companies time and money.
It has 360 customers around the world. This includes big name businesses like Netflix, Diageo and AB Foods-owned Primark, and it has delivered over 70 digital transformation projects for the public sector, including for the Ministry of Justice, the Home Office and the NHS. For example, it designed a new system for individuals to register to vote on behalf of the UK Cabinet Office.
The UK government’s determination to digitise its departments and growing adoption of Workday underpins its long-term growth prospects. Revenue, profits and the dividend have all increased at double-digit rates in its latest set of results and its backlog continues to increase.
Playtech is one of the world’s largest suppliers of online gaming software. Its software helps bookmakers and gambling sites with applications and platforms for online casino, poker, bingo, sports betting, and fixed-odds betting games. It also provides omni-channel gambling technology through its integrated platform technology, Playtech ONE, which delivers a suite of products including online wallets, customer relationship management software and data-driven marketing tools. It also owns Snaitech, its own gambling and sport-betting brand in Italy, and TradeTech Group, which provides services to the CFD and financial trading industry.
Playtech’s top-line continued to grow in 2019 but problems with its Casual Gaming division severely dragged down results and has prompted a review into the division. That resulted a lower dividend, but the company has been focusing on total shareholder return, which continued to increase. The outlook in the short-term is uncertain, partly because the coronavirus is impacting revenue, but the company believes it is ‘laying the foundations for our future growth’.
Softcatsupplies IT infrastructure software centred around four areas. The first is cyber security and the second is IT intelligence that aims to leverage data to make systems more efficient. The third is hybrid infrastructure that balances the need for on-premise datacentres and cloud computing infrastructure, and the fourth is digital workspace tools that help facilitate remote working.
It has several recognisable strategic partners, including Adobe, Amazon Web Services, Dell, Citrix, Cisco and Sophos Group– demonstrating the importance of its services even for the biggest of clients. Revenue and profits are on the rise and it has not only been raising its dividend but sweetening them with special payouts, partly thanks to its strong cash conversion of over 90% and its net cash position.
Avast is one of the largest cybersecurity companies in the world, selling its anti-virus software direct to over 435 million consumers worldwide. Avast says its software protects 45 million devices that are subject to a hack every month. It has been able to amass what it calls the ‘largest consumer user base’ in the industry by operating a ‘freemium’ model that means people can get basic protection for free or pay for a premium service.
Avast is a business always willing to consider acquiring others if it can help bolster shareholder returns and in the past it has used this as a way to expand its geographical reach or product range. The company sees a big opportunity as people continue to purchase more internet-connected products, like smart home devices. Avast is currently focused on introducing new products, cross-selling them to customers and increasing the number of customers that upgrade from the free to premium service.
Avast generated strong growth in 2019 and paid a dividend, stating it expected to deliver another year of mid-single digit organic revenue growth and a stable margin in 2020.
AIM technology stocks
Blue Prism Group
Blue Prism Group supplies Robotic Process Automation (RPA) software to provide businesses with what it calls a ‘digital worker’. It says it uses a combination of RPA and artificial intelligence so its digital workers can ‘execute and initiate systems-based tasks like a human’, reducing the need for labour and improving efficiency. The digital worker is ‘trained by business users, using defined rules but with no coding required at any stage’, meaning the use cases are limitless.
Blue Prism sells into more than 60 countries and customers tend to start small before buying more services. The company is fast-growing but still in the red. Revenue rose 83% in 2019 and 96% of it was recurring, which is a testament to the value its customers attribute to its service. Still, its pretax loss swelled to over £80 million from a £26 million loss in 2018. However, it has said that it is coming out of a period of investment that ‘should start to drive increased revenue in 2020 and beyond’.
IQE is a UK-based manufacturer of advanced wafer products and materials to the semiconductor industry. Semiconductors are used in practically every electrical device you can think of, but IQE makes around 80% of its revenue from products that help connect wireless devices from smartphones and tablets to satellite navigation systems and smart meters. IQE says it is the world leader in the market with over 50% share.
Unsurprisingly, that means the deployment of 5G and the increased connectivity that it will bring is vital for IQE’s future. The company is trying to improve profitability and diversify its customer base after its results in 2019 disappointed because it had problems with two major customers. However, it has said this will be temporary and that it remains ‘very well positioned’ to return to growth in 2020.
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