UK tech stocks solid despite tumbling FTSE

UK tech stocks were boosted last week by bumper trading news and a special dividend from Kainos Group

Kainos -

UK tech stocks were boosted last week by bumper trading news and a special dividend from Kainos Group PLC (LON:KNOS), the Northern Ireland-based technology services provider.

At a glance

Kainos soared 33% over the week after it said it expected “revenue to be well ahead and adjusted profit to be substantially ahead of current consensus forecasts” and also declared a special dividend in lieu of the cancelled final dividend. The move helped to push our large-cap UK software index up by 3.4%. Small caps were also firmer on the back of a number of strong gains inspired from positive news flow. This healthy performance was in spite of the 3.7% slide in the FTSE 100 over the week.

Small cap tech news roundup

Last week saw full-year results from IMImobile PLC (LON:IMO), K3 Business Technology Group PLC (LON:KBT) and Panoply Holdings PLC (LON:TPX) and interim results from Dev Clever Holdings PLC (LON:DEV), Quartix Holdings PLC (LON:QTX), Aptitude Software Group PLC (LON:APTD) and Shearwater Group PLC (LON:SWG). There were trading updates from 1Spatial PLC (LON:SPA) and Immotion Group PLC (LON:IMMO). Meanwhile, Gresham Technologies PLC (LON: GHT) made an acquisition while LoopUp PLC (LON:LOOP), Sopheon PLC (LON:SPE) and Blackbird PLC (LON:BIRD) announced commercial deals.

  • Dev Clever, which develops mobile and immersive experiences, reported a 68.7% jump in first-half (H1) revenues on a comparable period basis to £383k on the back of a strong performance from its agency services division. The group had cash of £472k as at April 30 and a subscription agreement in place after the period-end to raise up to £10mln.
  • K3 Business Technology, which provides mission-critical software, cloud solutions and managed services to the supply chain sector, reported a 61% slide in adjusted operating profits to £1.8mln as revenues fell by 6% to £78.4mln. Recurring revenue represented 67% of the total. The group closed the period with net debt of £2.4mln. After the period end, £6.0mln was raised and the loss-making UK Dynamics practice (which generated £21mln of revenues and an operating loss of £3mln) was placed into administration.
  • 1Spatial, which provides location master data management software and solutions, released an inline AGM trading update. It said that customer implementations and projects have largely continued as planned while the group has seen a healthy level of new business secured in all geographies, with both new and existing customers, albeit some decision-making remains protracted.
  • Quartix, which supplies vehicle tracking systems and services to the fleet and insurance sectors, saw H1 revenue rise by 4% to £13.1mln as adjusted underlying earnings (EBITDA) jumped by 24% to £4.6mln. Net cash increased to £10.0mln from £6.8mln at the beginning of the year, partly due to the cancellation of the final dividend. The interim dividend is being increased by 4% to 2.50p and there is a supplementary dividend of 0.87p. The group’s subscription base increased by 7% over the period to 160,648 vehicles while the annualised recurring revenues rose by £0.6mln to £21.5mln.
  • Gresham Technologies, which provides solutions for data integrity and control, banking integration, payments and cash management, has acquired Inforalgo Information Technology for up to £3.6mln. There is an initial payment of £2.3mln in cash and deferred consideration of up to £1.3mln. Inforalgo provides connectivity and intelligent automation solutions for financial services institutions enabling straight-through processing and real-time regulatory reporting. The acquisition, which supports Gresham’s plan to create a global enterprise financial technology business, adds 30 customers and will enable cross-selling opportunities in both directions. Additionally, the combination of both solutions will create a compelling regulatory reporting offering. The acquisition increases Clareti’s annualised recurring revenue by more than £1.2mln to £11.9mln.
  • Aptitude, which provides financial management software to large global businesses, reported an 11% increase in annualised recurring revenue over the 12 months to £30.9mln. Recognised H1 revenue rose by 1% to £29.1mln, with software and subscription revenue 4% higher while implementation and solution management service revenue slipped by 2%. Adjusted operating profit was flat at £5.1mln. The group finished the period with cash of £30.9mln, down from £33.0mln at end-December, along with lease debt of £1.6mln, for net funds of £30.2mln.
  • Shearwater, which provides cybersecurity advisory and managed security services, reported a 41% jump in revenues to £33.0mln in the year to March 31. Underlying EBITDA swung to a £3.4mln profit, reflecting a margin of 10% from negative 6% in the prior year. The company says that current trading has seen positive continued momentum in line with management expectations. The group raised £3.75mln (gross) in April, via a placing, to provide funds for acquisitions.
  • IMImobile, the cloud communications software and solutions provider, said that revenue rose by 20% to £171.2mln in the year to March 31, as adjusted EBITDA increased by 13% to £21.6m. Net bank debt was £22.2mln at period end, but this swung to £2.0mln net cash as at June 30, following the £22.2mln (gross) share placement in April. The Cloud Communications Products business grew revenues by 26% to £150.9mln, representing 82% of the group, as its gross profit rose by 38% to £64.5mln. Organic growth in this division was c 15% along with the inclusion of 3Cinteractive that was acquired in August 2019. Meanwhile, the Operator VAS & Payments division slipped by 11% to £20.3mln with gross profit 8% lower at £14.6mln. The company says, following period end, it has seen clear positive momentum across its regions and in wake of the coronavirus (COVID-19) pandemic, it strongly believes that current trends will benefit IMImobile. In the first-quarter (Q1) trading update early last month IMImobile said gross profit was up c 20% year-on-year for the quarter.
  • Immotion, the immersive entertainment group, said that a growing number of its partner sites are starting to re-open and many are already operating Immotion’s virtual reality (VR) installations. It said the largest installation to date, the 'Ocean Explorer' Immersive Theatre at Shark Reef Aquarium, Mandalay Bay Resort & Casino in Las Vegas, is expected to open within the next seven days. The group currently has cash on hand of c £2mln.
  • Panoply, the technology services group focused on digital transformation, reported a 43% rise in revenue to £31.5mln in the year to March 31 as normalised adjusted EBITDA jumped by 62% to £3.4mln. The group finished the year with cash of £4.6mln, which has since risen to £6.8mln. There were borrowings of £5.0mln which took end of period net debt position to £0.4m. In addition, there were acquisition liabilities of £16.7mln. While Panoply has acquired eleven companies within 20 months, management says it plans to be much more selective going forward. 70% of the group’s customer base is in the public sector, and it cites a report that digital transformation within the UK public sector alone will reach £20bn by 2025. Recurring revenues represented c 31% of the group total.
  • Sopheon, which provides enterprise innovation management solutions, is partnering with global snacking leader Mondelēz International to transform its innovation and commercialization processes and portfolios. Sopheon will collaborate with Mondelēz in an accelerated deployment program that will enable Mondelēz to go live with Sopheon's SaaS-based Accolade platform and replace two global legacy systems before the end of the year.
  • Blackbird, which provides a cloud video editing platform, has been chosen by Sky News Arabia for remote and collaborative cloud video editing and publishing of digital news content. Sky News Arabia will use Blackbird to drive video production efficiencies across a number of key workflows. Sky News Arabia's multi-site production teams in Abu Dhabi, UAE and other locations will be able to collaboratively and remotely edit and publish news content live to social platforms including YouTube for its 1.25mln subscribers to view.
  • LoopUp, the cloud communications solution provider for business-critical external communications, announced a major extension to its flagship solution, LoopUp, to include global cloud voice services via direct routing integration with Microsoft Teams, alongside its premium remote meetings capability. LoopUp believes it has a strong advantage over its competition, due to its premium voice network built since 2004, combined with its global operations footprint along with deep domain expertise.

Small cap software & services market roundup

Kainos Group PLC (LON:KNOS) led the large-cap software stocks higher, jumping by a third, following it bumper trading news and a special dividend. AVEVS Group PLC (LON:AVV) and FDM Group PLC (LON:FDM) also released trading news but closed the week broadly unchanged; however, Softcat PLC (LON:SCT) and Learning Technologies Group PLC (LON:LTG) rose by 7% and 6% respectively, helping the large-cap index to increase by an aggregate 3.4% over the week.

Small-cap software stocks were also stronger, rising 1.3% over the week, inspired by positive news flow from IMImobile (which rose 16% over the week), Quartix (up 10%), Sopheon (up 12%) and LoopUp (up 18%).

Small cap tech


Recent UK tech sector fundraisings

No significant new fundraisings in small-cap tech were announced last week.

  Estimated gross amount Announced Method Price Discount/ (premium) to prior day (%) Estimated % of new capital Comment
TERN £1.5m 20-Jul Subscription 8.5p 19.0 5.9 To expand the portfolio
Nanoco £3.4m 16-Jul Placing 17.5p 2.8 6.4 Address commercial opportunities, while maintaining balance sheet during lawsuit
Ethernity Networks £0.78m 13-Jul Placing/subsc 12p 37.0 16.6 To support engagements for its 5G offering
Deepmatter £2.1m 13-Jul Placing/subsc 1.5p 18.9 16.2 Invest in sales, marketing, distribution, support
Redcentric £5.755m 26-Jun Placing/subsc 110p (7.8) 3.3 Part funds settlement with the FCA
Instem £15.75m 26-Jun Placing 435p 4.4 17.7 Accelerate the acquisition strategy 
Boku £20.1m 17-Jun Placing 85p 7.1 8.4 Part finances $41m acquisition of Fortumo
Wandisco $25m 11-Jun Placing 650p 12.2 6.0 Strengthen b/s and working capital
Learning Tech £81.8m 29-May Placing 127p 7.6 8.8 Accelerate growth and gain market share
accesso technology £32.9m 22-May Placing 290p 13.4 29.1 Strengthen balance sheet as CV19 continues
accesso technology £6.2m 22-May Open offer 290p     1 for 13 ratio
VR Education €3m 20-May Subscription 5.47p 43.9 20.0 Subscription by strategic partner HTC
Keywords Studios £100m 15-May Placing 1450p 5.8 9.5 Acquisition strategy and strong balance sheet
KRM22 £0.135m 14-May Subscription 30p   1.8 Management subscription
KRM22 £1.145m 14-May Placing 30p (9.1) 15.4 Strengthen working capital, accelerate growth
Rosslyn Data £7.3m 07-May Placing 5p (5.3) 43.1 Increase S&M, maintain product development
Mobile Streams £1m 06-May Placing 0.3p 25.0 33.2 To give potential clients confidence

Source: Data from regulatory news and company websites

Tech calendar

Interim results season picks up next week and runs through September. There is also a scatter of final results from companies with periods ending April, May and June. In the large-cap hardware space, Spirent reports its interims this Thursday.

Across the pond, tech-related companies expected to report earnings this week include Gartner, Western Digital, Microchip, Nuance, Roku, Godaddy, Fiserv, Zynga, Fortinet, Cogent, Teradata, Motorola, Cloudflare, DXC and Switch.

Both Samsung and Google have marketing events this week, with Google revealing its Pixel 4a phone later today and Samsung holding its Galaxy Unpacked hardware event on Wednesday.

Date Company Event

03-Aug Seeing Machines Trading update

04-Aug Filtronic Final results

11-Aug SDL Interim results

11-Aug Amino Interim results

13-Aug Tribal Interim results

13-Aug Pennant Trading update

03-Sep NCC Final results

07-Sep SRT Martine Systems Final results

Early Sept Craneware Final results

9 Sept EMIS Interim results

15 Sept Bango Interim results

Mid-Sept Accesso Interim results

21-Sept Tern Interim results

22-Sept Idea Final results

29-Sept Alfa Financial Software Interim results

29-Sept Blancco Technology Final results

Late Sept Attracqt Interim results

30-Oct Seeing Machines Final results

Source: Data from regulatory news and company websites

Small-cap software & services valuations

The sector ratings look fair in comparison with the UK 350 large caps, given the significantly stronger growth potential, combined with the relatively strong balance sheets.

  Share Price Market Cap Net debt/(cash) Enterprise EV/sales Price/earnings
  Pence £m £m Value Year 1 Year 2 Year 1 Year 2
First Derivatives 2700 741 49.4 790.4 3.4 3.1 45.2 34.6
EMIS Group 1000 629 (44.1) 584.9 3.7 3.6 21.2 19.5
NCC Group 169 472 5.0 477.0 1.9 2.0 24.8 28.6
Craneware 1640 440 (38.7) 401.3 7.2 6.9 33.9 33.8
SDL 462 421 (26.3) 394.7 1.1 1.0 22.7 15.6
Ideagen 180 408 16.8 424.8 7.5 7.0 33.3 28.6
Iomart Group 347 379 37.3 416.3 3.6 3.4 21.0 19.9
DotDigital Group 114 340 (25.4) 314.6 6.6 6.3 29.0 30.6
Kape Technologies 197.5 313 24.2 337.2 3.5 3.2 18.8 16.4
IMImobile 347.5 286 (2.0) 284.0 1.6 1.5 29.7 24.1
WANdisco 530 272 (17.6) 244.4 14.7 10.4 (20.8) (33.9)
Alfa Financial Software Holdings 80 240 (58.5) 181.5 3.0 2.9 88.9 51.0
Aptitude Software Group 415 234 (30.9) 203.1 3.5 3.7 32.3 34.9
Redcentric 149 230 13.5 243.5 2.7 2.6 21.6 18.9
IDOX 48.6 215 14.0 229.0 3.4 3.2 22.3 18.5
Alpha Financial Markets Consulting 189 191 (14.1) 176.9 1.9 1.7 13.8 12.5
Tracsis 575 167 (16.0) 151.0 N/A N/A N/A N/A
Quartix Holdings 342 164 (10.0) 154.0 5.9 N/A N/A N/A
Eckoh 63 160 (11.6) 148.4 4.1 N/A 37.3 N/A
Centralnic Group 81 153 56.6 209.6 1.3 1.2 17.0 14.8
Blancco Technology Group 185 139 (6.7) 132.3 4.0 3.6 45.5 38.5
Loopup Group 222.5 123 5.4 128.4 2.3 2.3 15.2 28.5
Accesso Technology Group 265 109 (24.5) 84.5 2.6 1.2 (4.6) (49.8)
Bango 144 107 (4.2) 102.8 8.7 N/A 84.7 N/A
Tribal Group 51 105 (16.5) 88.5 1.3 1.2 13.7 12.7
Instem 507.5 104 (23.2) 80.8 2.8 2.6 28.1 29.8
Seeing Machines 3.1 104 (25.0) 79.0 3.9 3.0 (5.5) (10.0)
Oxford Metrics 75 94 (14.2) 79.8 2.1 1.9 17.4 12.8
D4T4 Solutions 223.5 90 (12.8) 77.2 3.6 3.2 32.8 27.8
Sopheon 870 89 (17.3) 71.7 N/A N/A N/A N/A
Essensys 150 79 (8.7) 70.3 N/A N/A N/A N/A
Cerillion 260 77 (4.8) 72.2 3.6 3.3 25.0 22.1
Gresham Technologies 110 75 (5.1) 69.9 2.9 2.7 47.6 38.3
Averages         2.8 2.4 49.4 28.7

Source: Data from regulatory news and market sources


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