When I think of the FTSE 100 index, tech stocks don’t spring to mind. But if I look closely at its constituents, there are two shares I’d buy today that are tech-focused.
Sage
Sage (LSE: SGE) specialises in accountancy software for small and medium-sized businesses. I first covered the company in March and I reckon the shares have potential. So far in 2021 the stock is up almost 15%, but over the last 12 months it’s down 3%.
The company is undergoing a transformation and the business is being simplified. By this I mean that it’s selling its non-core businesses. The main focus is now on its cloud-based products. These have proved useful especially during the pandemic when most people have been working from home.
The other change is that the FTSE 100 company is working hard to boost its recurring revenue. I like this about Sage as it gives me sales stability and visibility for the future.
The recent interim results were positive. The main thing for me was that organic recurring revenue increased by 4.4% to £811m. This highlights the company’s success at acquiring new customers, as well as migrating existing ones to its cloud software.
What I also like is that Sage has a strong financial position. For the six months ended 31 March, the net debt position had reduced to £96m from £238m a year earlier.
The outlook seems rosy to me. It now believes organic recurring revenue growth for the 2021 financial year to be towards the top end of its guidance of 3% to 5%. Sage also highlighted that it expects “margins to trend upwards over time”.
But there are risks. There’s no guarantee that the transition to a subscription business model will be successful. It’s likely to incur costs in the process, which could impact profitability.
Scottish Mortgage
It’s been a difficult 2021 so far for this FTSE 100 stock. Scottish Mortgage Investment Trust (LSE: SMT) is a tech-focused trust and so it was caught up in the inflation fear sell-off earlier this year. But I’m looking past this and looking at the bigger picture.
This is an actively-managed portfolio of public and private companies. This means the fund managers are experienced in selecting stocks and they have a strong track record. The lead fund manager, James Anderson is retiring soon, but I’m not overly concerned.
Baillie Gifford, the asset manager behind Scottish Mortgage has a good transitioning process. So I’m confident that the remaining fund managers will be able to run the portfolio just as well.
While the trust has exposure to some leading listed tech firms, I personally think the key gem is its private or unquoted stocks. What I like is that it has had great success with the managers having correctly identified private companies that have then gone on to float. I think this is pretty impressive and it’s important to note that investors are paying for investment expertise with this FTSE 100 share.
Again though, there are risks with Scottish Mortgage. Of course, there’s no guarantee the strong performance will continue. Another tech sell-off could impact the stock. And the investment trust’s private company portfolio does have exposure to some riskier investments, which may be unsuccessful.
