These UK tech stocks are back in demand
Analysts are backing this pair to do well following the latest update and optimistic profit forecast. City writer Graeme Evans explains.
28th May 2025 15:26
by Graeme Evans from interactive investor
A profit upgrade in the software and IT services sector today led to a renewed wave of City support for the value-added resellers Softcat (LSE:SCT) and Bytes Technology Group Ordinary Shares (LSE:BYIT).
Broker Peel Hunt said the well-managed FTSE 250 pair are examples of “great investments” in the space, “given the tendency to snowball as technology undergoes paradigm shifts”.
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The support came after Marlow-based firm Softcat reported broad-based growth across technology areas and customer segments in a brief third-quarter update.
It said that annual operating profit is on track to rise by a low-teens percentage, an upgrade to guidance that helped boost shares by an initial 4% to their highest level since March 2022.
They later settled 31p higher at 1,811p, which compares with Peel Hunt price target of 2,135p.
The read-across from the statement also lifted Bytes Technology, which helps organisations including the NHS and HMRC to integrate artificial intelligence (AI) and to transform operations using Microsoft Copilot and other tools.
Its shares rallied 22.7p to 519.7p, leaving Bytes more than 20% higher so far this year and closer to the 660p price target of Panmure Liberum.
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The broker told clients in commentary published following this morning’s Softcat update: “Bytes has dropped back to below 500p since results but is also trading well - this is the share we'd be buying today.”
A forecast-beating year-end trading update in March helped Bytes shares to rally as far as 550p, only to fall back in the aftermath of annual results in mid-May.
The full-year figures showed gross invoiced income (GII) above £2 billion for the first time, while operating profit increased 17.1% to £66.4 million and Bytes reported a strong balance sheet with closing cash of £113 million and 114% cash conversion.
A final dividend of 6.9p a share and special dividend of 10p is due to be paid on 25 July.
The company is the UK’s third-largest reseller, reflecting a smaller presence in hardware and services. However, it is closing in on Computacenter (LSE:CCC) in second place and has the highest exposure to the public sector, accounting for 65% of GII and 35% of gross profit in 2024-25.
Bytes as well as Softcat and Kainos Group (LSE:KNOS) are seen among the potential beneficiaries after a recent speech by Keir Starmer highlighted the case for AI to help deliver better public services.
His comments came as more organisations look to embed AI and automation into their systems and processes.
The recent trading performance of Bytes and today’s update by Softcat also provided further reassurance to investors in relation to the impact of Microsoft Corp (NASDAQ:MSFT)’s introduction of a new rebate structure from the start of the year.
Peel Hunt said today that the much-feared changes to incentives by Microsoft had proven to be a damp squib in the context of Softcat’s first-half performance.
It added: “We maintain our view that well-managed VARs like Softcat and Bytes are great investments, given the tendency to snowball as technology undergoes paradigm shifts - e.g. local-area-networks, cloud, and now AI.”
On its current 2026 calendar year forecasts, the broker notes that Softcat trades on 16.8 times underlying earnings versus Bytes on 12.8 times.
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