UK tech stocks account for just 1% Morningstar UK IndexHowever, this sector has a significant impact on investors’ perception of the domestic stock market. We don’t have the Magnificent Seven, but experts say investors shouldn’t ignore the story of homegrown technology.
For Henry Rowson, head of UK alpha equities at Royal London, the problem is that tech stars such as Darktrace, IQGeo, Spirent and Echo are quickly being arrested and taken private. “Technology is a popular place for M&A in the UK market,” he said, adding that there were also no large IPOs.
Arm Holdings, a Cambridge-based chip design company formerly owned by SoftBank, is Chooses to relist in New York in 2023avoided London despite interference from British politicians.
Kathleen Brooks, research director at XTB, says the UK’s technology sector is great, but problems arise when companies reach a certain size.
“We are one of only three economies in the world with a technology sector worth more than $1 trillion, and we are a leader in Europe. We are good at getting technology companies off the ground and building them. But once you get to the unicorn level, it kind of stops.”
Which UK listed tech stocks do managers prefer?
Tineke Frikki, Portfolio Manager Waverton UK Fundhas a Morningstar Medalist Rating of Bronze and supports Sage Group. SGE As one of the UK’s leading technology companies.
The £14bn company, which represents 3.47% of the fund, provides finance, human resources and payroll software to small and medium-sized businesses. A top class brand in the industry Morningstar UK Technology Indexreturned 17% over the three years ending January 22, 2025.
Frickey argues that Sage’s advantage is due to its successful penetration of the U.S. market.
“Sage is a British name and can compete well with US companies on a global scale, and the move to cloud, subscriptions and AI has further accelerated its growth rate,” Frickey says.
Sage stock rose following the November 20 earnings announcement. “We expect incremental (earnings) margin improvement as the company expands its software solutions,” Morningstar analyst Rob Hales said at the time. However, the Nov. 20 results are a significant step forward and could indicate faster margin growth going forward. ”
Sage Group Key Morningstar Metrics SGE
Analyst: Rob Hales, CFA
Sage’s main competitors are American multinational software companies Intuit and Oracle.
The company’s primary growth driver is Sage Intacct, a financial software package spun out from its 2017 acquisition of Intacct.
Halma is an acquirer of growing companies
Charlotte Ryland, co-portfolio manager CCLA CBF Church of England UK Equity FundHe has a Morningstar Medalist Rating of Gold and is a fan of Halma. HLMA.
Halma acquires companies across a variety of growth sectors, providing support from capital to IT.
Ryland said Halma is difficult to categorize because it has multiple subsidiaries focused on areas ranging from safety, environment to health care.
“At their core, there are many different businesses, but what unites them all is that they are niche businesses with a high return on invested capital,” she says.
“We see Halma as a stable formulator that will find more opportunities, which will be more profitable for them,” Ryland added.
Morningstar analyst Matthew Donen said of Halma’s competitive advantages:
“Halma’s industry-leading profitability is supported by acquisitions of small and medium-sized companies in niche markets where the total addressable market is relatively small.As a result, Hulma has leading market shares in many of the group’s product categories. ” and may have only a handful of competitors in other areas.
Halma’s Morningstar Key Indicators HLMA
Analyst: Matthew Donen, CFA
More than a third of Halma’s 50 businesses operate in the UK, but the company is exploring acquisitions overseas.
Last month, Halma acquired French electrosurgical business Lamidi Noury Medical for around £42m to gain access to a business that makes products used in surgical procedures.
Halma accounts for 2.82%. CCLA CBF Church of England UK Equity Fund. exceeded. Morningstar UK Index Returns for the year to January 22, 2025 are nearly 35%, compared to the 18% achieved by the UK index.
Kainos helps businesses integrate Workday software
Ryland also backs software and consumer services company Kainos Nos. The stock has a weight of 1.68% within the fund, but its stock price has fallen by about 20% in 2024.
Morningstar Key Indicators for Kainos Group Nos
Analyst: (Quantitative evaluation)
“When you implement Workday in a large company, you need someone to help you implement it,” Ryland says.
Kainos also provides digitization services to the UK government, including passports and driving licenses.
Despite this, the IT consultancy saw its public sector revenue fall by around 15% to £62m in the six months to September 2024. The UK government is the company’s main customer, and public sector revenues were frozen following the snap general election in July 2024. project.
Commenting on the economic downturn, Ryland added: “The problem for Kainos is that the government is always short on money. And if there is an election, will this be the top priority? But we hope they will work more on the digitalization process. We think there’s still a lot of opportunity, but it may be a little slower.”
Experian is truly a tech stock
The FTSE 100 also includes companies that don’t fit the classification as ‘technology’ stocks and are using the FTSE 100 to expand their services. Ryland points to credit rating agency Experian cost As a typical example.
Experian’s Morningstar Key Indicators cost
Analyst: Rajiv Bhatia, CFA
“Experian is an industrial credit reporting company. But if you look under the hood, they have a lot of data on consumers that they use to detect fraud.” says Ryland.
“They’re using that data to improve the marketing of financial products and analyze what people want, not just what’s happening with credit cards. So it might not be classified as technology. But technology is driving business growth.”
Morningstar analyst Rajik Bhatia argues that Experian already operates in mature markets in the U.S. and is eyeing markets further afield.
“Experian has a dominant position in Brazil and believes the emerging market’s growing middle class population and favorable regulatory changes (such as the use of more data types) will drive long-term growth.”
