2 technology stocks for ambitious investors

Bilaal Mohamed picks out two high-flying technology stocks that look set for further gains.

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Ideagen (LSE: IDEA), a leading supplier of Information Management software, revealed a surge in annual profits earlier today as it announced its full-year results for FY2017. The AIM-listed technology business reported another strong performance for the year to 30 April. It was its eighth consecutive year of sales and earnings growth, with total revenues coming in 24% higher at £27.1m, and adjusted pre-tax profits rising to £6.9m, from £5.7m just a year ago.

Fourfold increase

The Nottingham-based firm provides quality, safety, audit, performance and risk-management software and expertise and has operations in the UK, EU, US, and the Middle East. With an excellent portfolio of software products, it helps companies to improve operational efficiency, strengthen compliance, and anticipate and manage every detail of risk, helping to reduce costs and improve efficiency.

With a market value of £166m the AIM-listed group may be considered small-fry when compared to software giants such as Sage Group, valued at £7.2bn, but it can still boast a customer base of over 3,000 organisations that use its products. These include many blue chip names such as BAE Systems, Emirates Airlines, Royal Dutch Shell and the European Central Bank, as well as 180 hospitals in the UK and US.

Despite a fourfold increase in the share price over the last five years, the shares have never breached the £1 mark, but I think this is about to change. With City analysts forecasting a further 28% improvement in underlying earnings for the current year to April, investors should look past the premium P/E rating of 21 and see that this is a price well worth paying for rapid growth.

A better choice?

For those of you who are still uncomfortable with the idea of investing in AIM-listed companies or indeed small-caps in general, then FTSE 100-listed Micro Focus International (LSE: MCRO) could be the answer for those still keen on gaining exposure to the technology sector.

The Newbury-based global software giant isn’t expected to complete the acquisition of Hewlett Packard Enterprise’s software arm until early September, but last week’s announcement of full-year results for FY2017 gave investors plenty to celebrate in the meantime.

Buying opportunity

For the 12 months to the end of April total revenues rose by 10.9% to $1.38bn, with underlying operating profit up by an impressive 20.4% to $640.9m, compared to $532.5m for fiscal 2016. Management duly raised the final dividend by 17.3% to 58.33¢ per share, bringing the full-year shareholder payout to 88.06¢, 32.1% higher than the 66.68¢ it paid out for FY2016.

The shares have now retreated from May’s all-time highs of £26.60 and are looking much better value at just 15 times forecast earnings for FY2018. Of course there are no guarantees in the technology sector, but in my view Micro Focus could be a worthy blue-chip alternative to Ideagen for those who are more risk-averse.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus, Royal Dutch Shell B, and Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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