Who are the big names in UK tech and what’s next?
UK techs: are they really providing tomorrow’s tech?
Sometimes I find it gut wrenching. The UK leads the world in technology everywhere except on the stock market.
The UK: The land of Charles Babbage and Ada Lovelace, who designed a computer in Victorian times, of Alan Turing, the land that invented fibre optics, isolated graphene, the land that produced Sir Tim Berners Lee, the father of the World Wide Web, and today, the land that produced perhaps the world’s leading AI company, DeepMind.
With such an impressive contribution to modern technology you could be forgiven for expecting to see the UK stock market brimming over with techs. In the US, techs make up around a quarter of the S&P 500, they provide the main explanation for the index’s stellar performance of recent years, yet the UK stock market is dominated by companies operating in mature industries, that are changing very slowly.
And who are the UK’s top techs? I would argue they are ARM, now owned by Japanese company SoftBank, and DeepMind, owned by Google parent, Alphabet.
It is a sad indictment of something, but it is harder to ascertain exactly what it’s a sad indictment of. I suspect it has something to do with the different cultural values between the UK, often quite cynical and cautious, and the more optimistic, glass is half-full, way of looking at things in the US. In Britain, we love to hate our own creations, it sometimes seems to me we love to hate ourselves. That cultural attitude may have seeped through to the City. The City may be the leading financial centre in the world, but its track record for supporting tech is dreadful, instead for tech related wealth creation, it’s the financiers around Silicon Valley that lead the world. Okay, I concede things are changing, but I personally think that old fashioned British ways of thinking has held back UK tech, and if things are changing, this change is being led by immigrants. It is no coincidence that Silicon Roundabout and Shoreditch, a region long popular with migrants, is leading UK tech.
But that doesn’t mean there aren’t any UK techs listed on the stock market index. I think that given the above issues, those UK techs that do make it, are all the more impressive.
I am going to take a gander at some of the more interesting, UK techs, but let me make a couple of clarifications.
There are some very well known techs, whose main stock market listing is in the US, but whose shares also trade on the London stock exchange. IBM is such a company, as is Mitsubishi Electric company, and Ricoh. I am not counting them. When I say UK techs listed on the stock market, I mean companies whose main listing is London. More debatable on this point is Czech company Avast, but as it has a dual listing in Prague and London I am not counting this either, you may disagree with that choice.
I would also add that tech is crucial to nearly all companies these days. Banks that don’t master tech will die for example. This creates an interesting question: when is a company a tech? I think a good case could be made to say a bank like Monzo is a tech, but HSBC is probably not. Yet, the traditional banks have to be a lot more like Monzo, to survive.
AI and data are being applied by all forward looking companies — I have said here before about how much I like Unilever because of the way it is applying tech. Or take a company like Drax, using AI to direct energy generated by renewables more efficiently.
For the matter, in the US, Facebook and Alphabet are no longer classified as techs, but communication services company.
Tech is everywhere, to describe a company as tech simply because it makes a lot of use of tech may not make sense. But then is Amazon a tech? Is Netflix? Do you see the problem?
For the sake of this article I am defining a UK tech as a company whose core business model hinges on tech, or digital technologies such as the internet. A retailer that sells online is not a tech, but maybe a company that specialises in online sales is.
So, here are some UK techs, by that definition and which are listed on the stock market
Aveva: The company produces industrial software, and it is that rare thing, a tech that pays good dividends. Yield was only 1.3 per cent at the last count, but then shares have increased by almost four-fold over the last five years. If you had bought into the company in 2015, the yield on your investment would now be over four per cent. There is a good reason for the impressive share price performance, revenue has trebled over that five year period. There are a few buts, however. During that period, while revenues surged, pre-tax profits fell. Consequently, the P/E ratio is high — 35. But I am not so worried about that, the increased revenues will translate into higher profits, eventually. Of greater concern is the company’s reliance on oil and gas. But then again, it enjoys sales into the renewables sector, and for re-balancing, it has still got plenty of time — oil and gas won’t be collapsing any time soon. The most impressive part of Aveva, however, is the performance of the share price over time. The company was first listed in 1997, and shares have risen 60-fold.
Sage Group: I am tempted to call this company, the old reliable. It feels like it’s been around since the Arc. Famous for its accounting and payroll software, currently subject to a TV advertising campaign in the UK, Sage’s performance in recent years has been solid, but not exceptional. Profits and revenue are both up by around a third in the last five years, shares are up by around a half. Dividends are a respectable 2.4 per cent, not bad for a company that is growing at a fairly brisk pace. It’s opportunity lies with the cloud, meaning it sells its product on a subscription basis. Critics say it has been slow to adopt the cloud model. There is no excuse for this, that the cloud was going to transform the way companies use software has been well known for years. Interestingly, Sage’s share price, despite increasing five-fold since 2002, still languishes below the dotcom peak. There does seem to be plenty of room for growth however.
Rightmove: Now here’s a company that may have become a victim of its own success. When its product first came onto the market, it was streets ahead of the competition, if indeed there was any competition. Estate agents looked at the internet anxiously, how were they to handle this strange new beast? Rightmove provided the answer, not to mention a promotional tool. But how do estate agents build their brand with Rightmove? They each what to distinguish themselves with their own unique presentation. I fear that Rightmove has become little more than a search engine for property, but which faces growing competition from, among others, Facebook. Nonetheless, profits are up by more than a half in the last five years, shares have had a good 12-months and are up by nearly 3-fold in the last five years. I just want to see something exciting and new before I get bullish again about what was once a very exciting tech.
Auto Trader: This is a good example of a company that is arguably not a tech but has used tech so well, it is counted as falling into that category. It started life as a paper publication financed by classified ads, and although it has changed hands more than once, I do like the way the company, under different owners, learnt how to embrace digital. Shares are up by a quarter over the last year and more than doubled over the last five years. I wonder what will happen to the company if we really are close to peak car, and car purchases in the UK fall, as car sharing becomes more popular. Then again, this day probably won’t dawn until the latter years of this decade.
Micro Focus: The company provides software to help run and secure an enterprise. This is a good example of a company operating in a space that is very much in vogue, but despite this has been struggling. After a string of controversial purchases, the share price is currently almost half the price six months ago and around 40 per cent of the price two years or so ago.
Sophos: At last we get to a UK company operating in one of the most crucial sub sectors within the tech space — cyber security, but maybe not independent for much longer. The company specialises in network and endpoint security. Shares are up by around a half over the last year and have more than doubled over the last five years. Last October the US firm Thoma Bravo agreed a 3.9bn bid to buy Sophos.
Blue Prism: Produces what’s known as RPA technology — robotics process automation. RPA, which seems to be mutating into intelligent automation, and ties in closely with AI, is one of the hottest technologies around at the moment, although it has been subject to a degree of hype. Blue Prism is one of the leading players in this field.
Codemasters: A computer games company that has been around since the 1980s, but has a licence to sell games based on Formula One, which has just been extended to 2025 and has bought Slightly Mad Studios, which is developing a game based on the Fast and Furious movie franchise. The company has been migrating to digital mediums for selling its games, meaning a big jump in margins.
Trainline: Since the IPO, shares in Trainline have done very nicely, but have fallen sharply over the last few weeks. What I like about this company is the way it practices what it preaches. It is a tech that applies the latest tech/digital transformation ideas to manage its agile product development.
Finally, I would like to include Boohoo in this list. Some might describe it as a fashion company, I would say it is a tech that applies data to focus on fashion. I waxed lyrical about the company last month and I have not changed my mind, since.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees