2017 was a great year for tech stocks, as Facebook, Amazon, Apple, Netflix and Google-parent Alibaba bared their FAANGs. The action wasn’t limited to those US monsters, a number of UK tech predators also showed teeth. Will these two give your portfolio some bite?
Sage advice
FTSE 100-listed The Sage Group (LSE: SGE) has enjoyed a storming five years, its share price up 161% in that time, including 22% growth in 2017 alone. With a current market cap of £8.61bn it is hardly a big fish like Apple Inc, but it isn’t small fry either. I spotted a buying opportunity in April when the share price hit 654p. Today it is 22% higher at 797p.
Sage offers integrated accounting, payroll and payments solutions to businesses around the world, and last August was picked out as a ‘Best of British’ stock by Goldman Sachs, which reckons it should benefit from improved renewal rates and customers switching to its subscription-based model with more cross-selling opportunities.
Silver lining
In November, Sage reported strong 6.6% revenue growth to £1.7bn for the year, with recurring revenues making up 78% of the total, and software subscriptions up from 22% in 2014 to 37% today. The launch of Sage Business Cloud in October should further lift the business, as it has developed a range of cloud-based accounting software in just three years.
A growing company, in a growing area – what’s not to like? Not much, frankly. Sage’s earnings per share (EPS) have now grown for five consecutive years and are forecast to increase 12% in the year to 30 September 2018. The yield is 2.1%, well below the FTSE average of 3.81%, but cover is solid at two. Inevitably, the only thing not to like is the price, a forecast 23.6 times earnings. That is the price you pay for success and I would expect Sage to deliver more of it. Here’s another tech play you might like.
Cloud nine
Keeping our head in the clouds, we find technology high-flier AIM-listed Iomart Group (LSE: IOM). Its share price leapt 32% last year, and it is up a cracking 133% over three years. The cloud computing services provider reported positive half-yearly results in December, with revenue up 12% to £47m and adjusted profit before tax rising 9% to £11.6m. It also issued its maiden interim dividend of 2.25p per share.
Iomart is a small company with a massive target market as more businesses look for help in migrating to cloud platforms. It offers them the skills to manage private and public cloud services, with e-commerce one of its fastest-growing areas.
Float on
Today could be an attractive time to enter this £423m company, which reported an 18% jump in EPS in 2017, and its rich vein of earnings growth is forecast to continue at 7% in 2018 and 13% in 2019. By then, the yield is expected to hit 2%.
I was bracing myself for a stonking valuation given recent high growth rates, but Iomart currently trades at a forecast 18.7 times earnings, which is hardly daunting. Small-caps are always risky but the company’s low debt levels and high levels of cash generation bring comfort. The cloud is the limit.
