Three UK tech stocks to consider for your portfolio

It’s probable that the Covid-19 crisis will accelerate the take up of digital products and services. Here are three UK tech stocks that could benefit from this switch.

Article updated: 25 June 2020 2:00pm Author: Michael Baxter

Before Covid, Zoom was not so popular. Meetings were things we conducted face to face. Now we have found that it is possible to have a meeting with several people over the Internet. No need to travel to attend a meeting. The impact will be enormous.

The emerging Zoom economy is just one reason why we are seeing an acceleration towards digital. Working from home has been tried, and many companies are finding it works well. Why pay for an expensive office big enough to house all your staff, if working from home is perfectly effective, most of the time?

Automation has also been forced upon companies, less staff available has meant companies have needed to automate as many processes as possible.

The Covid crisis has brought home the need for agile working practices — digital transformation has become more important than ever. Linked to that has been a reminder of the importance of data to provide timely insights on changing customer behaviour, for example.

What does all this mean?  Well, we will see the increased adoption of AI, the 'Internet of Things' — especially applied to industry, remote working tools, and digital consultancies. Remote working has also created massive cybersecurity risks.

It is no coincidence that in the US, tech companies have seen share prices soar, that the technology dominated NASDAQ Composite currently sits at an all time high.

But what about UK techs? It frustrates me given how dynamic the UK tech start-up scene is, how few UK techs are listed on the stock market.

But here are three UK tech stocks that I think are especially interesting.

Computacenter 

The company is an independent provider of IT infrastructure services around the world. The company says that it “provides user support, supply chain management, and secure provision of applications and data to support individual working styles and improve collaboration.” It’s the leading IT infrastructure services provider in Europe.

So, that’s the box ticked, Computacenter is a good example of a UK tech which provides the kind of service I would expect to be in high demand post-Covid.

In its last financial year revenue increased from £4.35 billion the year before to just over £5 billion. Profit before tax increased from £108million to £141million and it’s balance sheet looks quite strong.

I am unclear why shares have fallen so much this year, the markets may have failed to grasp the relevance of its product the the post-Covid World.

Computacenter Share price history
Current 1,648p (June 24)
Year peak 1,920p
Historical story The year high also represents a 20 year-high for share price
Growth Shares up 12-fold over ten years and doubled over five
P/E 18.5
Market cap: £1.8bn
Yield 2.25%

NCC Group

The company’s high P/E ratio and weak share price performance over the last four years may put some investors off, but NCC Group is one of the few UK tech stocks to boast world class expertise in cybersecurity.

A few days ago it issued an update saying that it expects to be “comfortably ahead” of expectations for revenue and adjusted EBIT.

NCC Group stated: “We remain confident in the long-term growth potential of the cyber market. Therefore, consistent with our March trading update, our two key priorities are to maintain a strong balance sheet and to preserve our specialist capability and capacity in order to meet the strong demand we expect in future years.”

I agree with that in one key respect: I also remain confident in the long-term growth potential of the cyber market.

NCC Group Share price history
Current 199.8p (June 24) 
Year peak 199.8p 
Historical story Shares peaked in 2016 at 342p
Growth Shares have fallen over five years but doubled over the last ten
P/E 40
Market cap £532m 
Yield 2.44%

Aveva

Aveva provides industrial software. It provides cloud services and its technology applies the industrial internet of things. Recently, CEO, Craig Hayman, recently said that the company was “focused on being digital in everything that we do.”

In the year to 31st March 2020, revenue was up 8.8%, recurring revenue was up 25.7%. Adjusted EBIT increased 23.3%.

Critics point to its historical focus on oil and gas, but it has become a lot less reliant on this sector since its acquisition of Schneider Electric’s industrial software business.

I think its expertise in industrial software can apply across sectors and I doubt that the markets have cottoned on to how relevant its offering is to the Post-Covid, digital economy.

Aveva Share price history
Current 4,150p (June 24)
Year peak 5,290p
Historical story Shares hit all time high in February of this year
Growth Shares have slightly more than doubled over five-years and quadrupled over ten-years.
P/E 96
Market cap £6.7bn
Yield 1.08%

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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