Top UK tech stocks to watch
Discover some of the UK tech stocks with the most attractive long-term growth prospects and short-term volatility and find out how they’re coping with the new economic environment.
Ocado Group is a FTSE 100 company predominantly known for its online grocery operation. However, the firm doesn’t have any stores and utilises robot-operated picking, then ships the goods from its warehouses to customers – making it a grocery chain with a heavy influence from the tech sector.
Ocado also has a digital grocery platform 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 services, storage and distribution.
In May 2022, the company announced the acquisition of materials handling robotics start-up Myrmex, in a deal worth more than €10 million. Myrmex was instructed to build an automated grocery-picking system for the Ocado Smart Platform, suggesting that tech-based solutions are a key target for the blue-chip firm. However, later in the year the company announced that it was pausing its expansion plans due to waning demand for online grocery services.
Halma is an acquisition-led FTSE-100 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 the existing management of any company it buys in place and gives it what it needs.
This includes boosting exports from its key hubs in the US, China, Brazil, India and the EU or providing the tech it needs.It has at least 49 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 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.
Halma also just so happens to be a ‘dividend aristocrat’. This means it has paid out dividends for the past 25 years or more, as well as consistently raising their dividend payout.
However, Halma’s stock price has suffered as a result of macro-economic events such as the Covid-19 pandemic and the war on Ukraine, which have taken a toll on most FTSE 100 companies. By June 2022, the stock price was 35% lower than it was in January, but revenue has remained buoyant.
Half year results for the 22/23 financial year found that revenue was up by 19% year-on-year (YoY), and profits were up by 11%. As a result, many analysts believe there’s still a positive long-term outlook for Halma. Looking over a five-year period, we can see Halma’s shares have increased by more than 82%, despite market volatility, which indicates it could be a steady-growth stock.
Games Workshop (GW) is a well-known British manufacturer of wargames and tabletop miniatures. The company has been one of the FTSE 250’s best performing retailers of the past five years, with its share price more than tripling since 2017.
A large part of this meteoric rise was thanks to its strong sales and dividend scheme, which encouraged investor confidence despite the pandemic. While others in the retail sector saw declining sales, GW maintained profitability and even increased its revenues by 2.5% YoY during the six months to November 2021. During the company’s 2022 financial year, revenues increased by 8.68% on the previous year.
Although Games Workshop’s fanbase is small, they’re dedicated and have remained so in lockdown, which caused online sales to skyrocket in 2020. The stock price has recently returned to pre-pandemic levels, and it remains to be seen if the company can continue to innovate its offerings and maintain customer loyalty in the long term.
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’s also the go-to consultancy for Workday software, with its Kainos Smart software automating testing to help save companies time and money.
Kainos boats several big-ticket customers, including Netflix, Diageo and AB Foods-owned Primark. The company has delivered over 70 digital transformation projects for the UK’s public sector, with clients like the Ministry of Justice and the National Health Service (NHS).
It’s also one of the few FTSE 250 companies headquartered in Northern Ireland, which benefits from a low cost of living and an abundance of young tech talent.
For H1 2023, Kainos reported a 26% YoY increase in revenues, and an 11% increase in profits, which the company said ‘reflects robust underlying market demand, high levels of customer engagement and the continued commitment of our colleagues.’
Softcat supplies IT infrastructure software centred around four areas: cyber security, IT intelligence, hybrid infrastructure and digital workspace tools. Through its work, it aims to leverage data to make systems more efficient, balance the need for on-premise data centres and cloud computing infrastructure, and 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.
In the six months ending 31 January 2022, Softcat grew its revenues by more than 33%, while profits rose by 12.4%. Like Kainos, Softcat saw a significant uptick in its share performance thanks to the technology boom during the Covid-19 pandemic, and the enormous demands for cloud solutions to help employers deploy remote working solutions for their staff.
However, this demand has tapered off somewhat – resulting in a 28% fall in the stock price during the first 11 months of 2022. In November 2022, CEO Graeme Watt said that the company had seen ‘robust demand’ over the previous three months.
Formerly known as Amino Technologies, Aferian’s rebrand is just one of the may changes that the company has gone through over the past couple of year. The video streaming specialist has seen a number of board updates and it recently closed a major acquisition, acquiring AI-powered video recommendation service the Filter in a deal worth $5.2 million.
Aferian has two operating companies – 24i and Amino. 24i’s technology uses AI and data science to improve the quality of video streaming. Its service is compatible with all video streaming platforms, from global giants such as Netflix to hotel television content. Amino provides the devices and software that help pay TV providers deliver the highest quality live, local and on-demand content, at both a broadcast and streaming level.
This means that Aferian is in a great position to benefit from the ongoing demand for streaming services and other visual content. Industry sources have predicted that the global TV streaming market will double to $167 billion by 2025, and Aferian has built its ‘Aferian 2025’ strategy around this, aiming to become a ‘predictable software-based growth business’ with a large market share of the streaming software sector within the next three years.
In October 2022, Aferian revised its profit guidance downwards, resulting in a 37% drop in its stock price. The company now expects a 2022 profit of $7.8 million – down from $11.8 million the previous year. This is partly due to a $5.5 million bill for an unsuccessful ‘significant’ acquisition opportunity.
IQE is a UK-based manufacturer of advanced electronic ‘wafer’ products (a type of electronic semiconductor) and other 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.
Unsurprisingly, that means the deployment of 5G and the increased connectivity it brings is vital for IQE’s future. Despite a rocky 2021, IQE’s stock price remained fairly stable during the first five months of 2022. However, the stock value is still below its mid-Covid peak in January 2021.
CEO Americo Lemos joined IQE in January 2022, with a pledge to grow the business in line with macro technology trends. For H1 2022, Lemos reported that the company’s revenue grew by 8.4% compared with H1 2021, praising the company’s resilience and relevance.
It’s worth noting that IQE can at times experience a lot of daily price swings, with volatility akin to penny stocks, which could be of interest to short-term traders.
Moonpig is an online greeting cards and gifts company, which is viewed by some as a tech stock due to its use of technology platforms, applications and data science systems to connect with its clients.
The Covid-19 pandemic was kind to Moonpig, with the retailer reporting that revenue rose 44% in FY21. However, what goes up must go down and by June 2022, Moonpig’s stock had shed 50% of its value, year on year.
In July, the company confirmed the £124 million cash acquisition of Buyagift, which owns experience company Red Letter Days. Soon after, its 2022 annual report showed that the company’s revenue declined from £368.2 million in 2021 to £304.3 million in 2022.
However, Moonpig remains a divisive UK stock, with many investors very bullish on the company’s prospects as a relatively new addition to the FTSE 250, and others sceptical of its claims of being a tech stock and of its meteoric rise since then.
London-based Deliveroo is a food delivery business listed on the LSE. Founded in 2013, the company operates in over 200 countries across Europe, Asia and the Middle East. Its core business is delivering restaurant meals to customers’ doors, while its subsidiary Deliveroo Editions prepares food themselves, also for home delivery.
Despite the obvious need for meals on wheels in the Covid-19 pandemic era, the company didn’t have an easy 2020 and 2021, and its stock value has continued to slide in the first half of 2022. Between its LSE debut (31 March 2021) and 1 December 2022, Deliveroo’s stock shed 67% of their value.
Issues around workers rights, and the rising cost of food have marred the company’s growth. In the third quarter of 2022, Deliveroo noted a 1% YoY decline in customer orders, but said that this was offset by a 9% growth in the value of each transaction.
Trustpilot is an online consumer review business that listed on the LSE in March 2021. Completely web-based, the website’s mission is to be the universal go-to forum for leaving reviews and for people checking companies’ customer-centricity.
In its IPO, the reviewing website managed to raise over £470 million, with a float of £1.08 billion market cap. But a year later, the stock price had dropped by more than 46%. Despite this, Trustpilot has forecast growth in line with its expectations in 2022. The company has yet to turn a profit, but analysts have predicted that it may finally become profitable by 2023.
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UK tech stocks: what’s the outlook?
UK tech stocks had something of a renaissance over the past two years, with many companies’ share prices and revenues rocketing as the demand for remote working solutions, home grocery delivery and cybersecurity surged.
However, the longer-term economic impact of the Covid-19 pandemic can’t be denied. Supply chain disruption has continued to some extent, while the Russian invasion of Ukraine has piled more pressure on the cost of goods and access to global markets, leading to a raft of economic recessions in some of the world’s biggest economies.
During the pandemic, many tech stocks saw their values soar or tank, depending on how well they were able to pivot. A number of high-profile IPOs followed in 2021 and 2022. However, macro-economic conditions have caused a drag on valuations across the FTSE All-Share, and tech stocks haven’t been insulated from this. This means that there’s plenty of space for growth, particularly if the company’s fundamentals are strong.
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