The UK technology sector is out of favour right now, and that's the ideal time to trawl it for bargains.
The UK technology sector is a bit of a mixed bag at the moment, with a number of its members having had a bit of a yo-yo ride of late. But even amongst its high flyers there are shares that look cheap.
Communications shovels
One that has attracted Foolish interest over the past few years is Vislink (LSE: VLK), a company that specialises in the provision of communication technology for serious high-bandwidth services -- microwave links, satellite communications, and all manner of broadcast and CCTV services.
As David Holding pointed out when he wrote about Vislink's "picks and shovels" characteristics in May, the company is in a process of refocusing and cost-cutting after a relatively poor 2008. The latest numbers suggest this new approach is already paying dividends, with forecasts for the year ending December 2009 suggesting earnings rising 35% to 4.3p per share, and then to 5.5p in 2010. With the price currently hovering around 27p, that puts the shares on a prospective P/E of just over 6 for 2009 and under 5 for 2010, and a prospective PEG of under 0.2 for this year. We do need to be cautious if using the PEG for a company that hasn't had several years of steady growth -- Vislink's earnings fell 50% last year -- but such a low figure does give us a decent safety margin compared to the commonly-desired figure of 0.7 or less.
The dividend is expected to come in at 1.3p for the next two years too, for a yield of 4.8%. With Vislink having a healthy net cash position, net assets of around 40p per share (though not a huge amount of tangibles), and with forecast earnings covering the dividend three-fold and four-fold for the next two years respectively, it looks like there is plenty of safety in today's price.
Interim results, due in August, should give us more feedback on how the company's strategy is going, but from where we're sitting now, Vislink looks like it might be a steal.
Traffic-watching
Trafficmaster (LSE: TFC) is a company that plagues my investing career. Every time I examine if, I like the look of it, but I never buy it. (I've been much the same with Autonomy (LSE: AU) too over the years, and Owain Bennallack's recent musings certainly hit home).
Trafficmaster's shares have doubled this year, to around 30p now. But even after that run, the numbers still make them look cheap. With earnings growth of 10% and 40% forecast for this year and next, the shares are on a P/E of 7 for this year, dropping to just 5 for 2010. And, rarely for UK technology companies, if expectations are met, 2010 will bring a fifth straight year of earnings growth. The shares are also on a lowly PEG of 0.2, and borrowings are too small to worry about, so again this looks like a low-risk investment (albeit without any dividends to provide back-up income).
I expect I'll look at Trafficmaster again in a couple of months, note that the shares have risen even further, but opine once again that they're still cheap. And I still won't have bought any.
Recovery on the way?
Finally, one that has intrigued me in my perusal of tech stocks is Psion (LSE: PON), the company that brought us those early and great pocket computers, and later the Symbian mobile phone operating system. Having slipped from favour in recent years, Psion, in the guise of Psion Teklogix, is still providing us with mobile computing goodies.
Last year was a pretty disastrous one as far as profits go, with earnings per share down 65% on 2007, and the share price plummeted in line with that. But it is interesting to see that the price has risen steadily this year, with interim results due in August.
Going on last year's results, the current 65p share price gives us a historical P/E of nearly 30, so we'll need to see a serious return to form this year if that price is to be justified. And it will take some doing -- to bring the P/E down to a more realistic 10 or less, which would be more in line with the sector right now, we'll need to see this year's earnings triple to the level of 2007's. With early murmurings of the economic downturn still hurting, I can't help feeling the share price right now is somewhat optimistic.
So, I'm certainly not suggesting we should be buying Psion shares right now, but the half-year will be well worth keeping an eye on. Psion has net cash, lots of assets, and still managed to pay a good dividend last year. If it can return profits to past levels, it could become one for investors to start taking seriously again.
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