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?
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.
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.
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.
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.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.