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10 UK tech stocks that are on the move

6th May 2021 18:58

Ben Hobson from Stockopedia

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Stockopedia’s Ben Hobson finds the UK companies that make a great alternative to big tech IPOs. 

Huge interest in the recent IPOs of Deliveroo (LSE:ROO) and Darktrace (LSE:DARK) shows just how much the UK market loves the prospect of billion-pound-plus tech company flotations. With software and IT stocks powering the US market for so many years, it’s a sector that excites investors everywhere. But if you’d rather not take your chances with an IPO, there are UK tech firms already on the market that might be worth a closer look.

Technology is a notably under-served sector among UK quoted large caps. Earlier this year, one of the few stars of the FTSE, Just Eat Takeaway.com (LSE:JET) could switch its listing to the States after acquiring a rival there. So it’s understandable that rumours of new mega IPOs attract attention.

Some of the possible new UK listings currently on the cards include fintech groups such as Wise, Monzo, Starling and PensionBee. With a touted market cap of upwards of £4 billion, Wise (formerly known as TransferWise) would be one of the largest tech IPOs of recent years. But it doesn’t come close to the kinds of prospective US IPOs being talked about, which include the online payments processor Stripe ($95 billion) and social media platform Tik Tok Global ($50 billion).

While IPOs can be appealing, there are options elsewhere in the software and IT sector for those looking for stocks that are better understood by the market. In the UK, this tends to mean looking much further down the market-cap spectrum for small and mid-cap shares. While these firms can’t offer the vast scale of tech mega-caps, some of them have been delivering strong growth and impressive price returns.

With this simple screen, we took the UK software and IT industry sector and sorted it based on the overall appeal of each stock’s valuation, financial quality and price and earnings momentum. That’s summed up in the StockRank for each share (the higher the better). We also examined the price/earnings (PE) ratios as a general measure of valuation and the expected earnings growth for each share in the year ahead.

The results offer an interesting mix, with predictably high PEs in places, strong price performance over the past year and some triple-digit forecast earnings growth figures.

Small-caps like the business-to-business enterprise software firms Netcall (LSE:NET) and Cerillion (LSE:CER) have the highest earnings forecasts and strongest price trends. Meanwhile, the larger players, such as tech infrastructure rivals Computacenter (LSE:CCC) and Softcat (LSE:SCT), rank strongly but have more modest growth outlooks.

Name Mkt Cap (£m) Sales (£m) PE Ratio EPS Gwth % Forecast 1y Relative Price Strength 1y Stock Rank
Computacenter (LSE:CCC) 3,041 5,441 20 -2.48 50.1 90
Netcall (LSE:NET) 107.8 26.2 64.5 238.7 80.6 89
SysGroup (LSE:SYS) 23.9 19.2 14.8 773 39.2 88
Eleco (LSE:ELCO) 102.6 25.2 30.7 25.9 38.9 85
Softcat (LSE:SCT) 3,729 1,130 42.6 20.6 34.8 82
NCC (LSE:NCC) 754.4 266.6 31.8 -0.83 35 72
Cerillion (LSE:CER) 188.1 20.8 45.1 104.4 89.1 71
Instem (LSE:INS) 149.2 28.2 41.1 48.1 23.3 70
Kape Technologies (LSE:KAPE) 666.6 88 20.8 53.2 45 68
Tracsis (LSE:TRCS) 252.1 43 36.8 66.4 22.2 67

Source: Stockopedia. Past performance is not a guide to future performance

While these names may not offer the glamour and frenzied anticipation of a blockbuster IPO, they are arguably a useful place to start in the search for tech stocks with the power to grow.

In the UK market, the most exciting growth plays tend to be found in the smaller-cap indices. And while valuations in the sector are likely to be rich in places, the chances of finding shares that can re-rate strongly might be higher than navigating a new IPO.

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These investment articles are simply for generating ideas. If you are thinking of investing they should only ever be a starting point for your own in-depth research.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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