UK tech stocks hold up despite US tech sell-off

UK small cap tech stocks continued cautiously higher last week, as US tech stocks extended their declines while the FTSE heavyweights rallied on the back of a declining pound

SRT Marine Systems PLC - UK tech stocks hold up despite US tech sell-off

At a glance

Our small cap software leaders index rose 1.0% over the week with rises and falls roughly in balance. This was during a week that saw the tech-heavy Nasdaq slip 4.1% while the FTSE-100 rallied 4.0%. Meanwhile, our large-cap UK software index rose 1.7%, boosted by Computacenter which jumped 10% over the week. Computacenter pushed up its interim dividend by 22% and announced the acquisition of Canada-based Pivot Technology Solutions for c C$106mln. The acquisition roughly doubles the group’s size in the North American market.

Small cap tech news roundup

Last week saw final results from SRT Marine PLC (LON:SRT), interim results from Blackbird PLC (LON:BIRD), EMIS Group plc (LON:EMIS), DeepMatter Group PLC (LON:DMTR), IQE PLC (LON:IQE), Aquis Exchange PLC (LON:AQX), VR Education Holdings PLC (LON:VRE) and a commercial announcement from Seeing Machines Ltd (LON:SEE), LoopUp Group PLC ( LON:LOOP), Bango PLC (LON:BGO), Oxford Metrics PLC (LON:OMG), Sopheon Plc (LON:SPE) and Dev Clever Holdings PLC (LON:DEV). There was also an acquisition and fundraising by CentralNic Group PLC (LON:CNIC) and Iomart Group Plc (LON:IOM) announced a new CEO.

SRT Marine, the provider of maritime surveillance systems, revealed an 8% reduction in group revenue to £18.9mln in the year to March due to Covid-19 delayed system projects. The group swung to an operating loss of £2.5m and there was also an impairment charge of £3.9mln on a Middle Eastern project. The group finished the year with £0.9mln in cash, along with £5.0mln of debt and £1.3mln of lease liabilities. SRT raised an additional £5.3mln in April and currently has c £6mln cash. The validated sales opportunity pipeline for systems business includes 17 new system opportunities with an aggregate value of c £550mln as of 3rd September 2020. Additionally, the transceivers business, which grew revenue by 24% in FY20, has maintained its trading level. Consequently, management expects “a much better year ahead”.

Blackbird, the cloud video platform provider, announced a 49% jump in revenues to £714k in the six months to 30 June. Cash burn reduced by 31% to £846k and the group ended the period with net cash of £7.2m. FY20 secured revenue stood at £1.453mln at as end-August, while FY21 contract revenue is up by 63% £756k over the comparable period. The groups intellectual property (IP) is based around its video codec and editing suite and is supported by patents. Management argues that the company is at the beginning of an inflexion point, which comes after years of product development, and is well positioned to target the c $1bn video editing market along with a significantly larger adjacent distribution market.  

IQE, which supplies advanced wafer products and material solutions to the semiconductor industry, grew H1 revenues by 35% to £89.9mln. Adjusted EBITDA surged by 120% to 16.3mln. The group swung to a £4.3m adjusted operating profit; after exceptional losses the group recorded a statutory operating loss of £5.0mln. However, the bulk of the exceptionals were non cash, and net debt decreased by £8.6mln over the six months to £7.4mln. The company has introduced FY20 revenue guidance of at least £165mln along with at least a mid-single digit adjusted operating profit for FY20. PP&E cash capital expenditure guidance remains at no more than £10mln.

Seeing Machines, the computer vision technology company, has signed a memorandum of understanding (MOU) with an unnamed global semiconductor company, as formal terms of engagement are finalised to licence the company's Occula neural processing unit. This follows the broad announcement made the prior week outlining a new three pillar embedded product strategy approach to targeting the automotive sector. The collaboration represents the third pillar with Occula licenced in ASIC form to world-leading semiconductor companies for integration with any automotive compute platform.

EMIS, which provides connected healthcare software and systems, announced a 2% reduction in H1 revenue to £78.1mln, as the adjusted operating profit also slipped by 2% to £17.8mln. Recurring revenue rose by 5% to £63.5mln, representing 81% of the total, up from 76% in the prior period. The group ended the year with net cash of £44.1mln. The boards expectations for the full year remain unchanged.

Aquis Exchange, the exchange services group, grew H1 revenues by 42% to £4.9mln while EBITDA swung to £0.54m from a small loss in the prior period. The group finished the period with net cash of £11.2m.  The exchange business grew revenues by 37% to £3.7m as number of members rose by 1 to 31. The business operates a subscription pricing model and a new unlimited tier has been introduced. A French subsidiary was created to cope with a potential hard Brexit. The recently acquired Aquis Stock Exchange has seen good progress on integration and three new companies have been listed. The plan going forward includes the monetisation of data including introduction of indices.  The technologies division grew revenue by 13% to £790k despite the challenging market conditions.

Bango, the mobile commerce company, has agreed a partnership with ODK Media, a Korean and Chinese subscription-based video streaming service. That partnership means telecoms companies globally will be able to offer access easily to the content on ODK’s OnDemandKorea.com and OnDemandChina.com with payment through Bango's platform, with the initial focus on telcos based in North America.

Oxford Metrics, the analytics software provider for motion measurement and infrastructure asset management, said that its connected asset management software and services division, Yotta, has secured eight new contract wins since April 2020. The eight contract wins, three of which were to new customers, are across a range of service areas, including highways, street lighting and waste management, covering the South West, Midlands and Yorkshire regions. Also, during the lockdown period, eleven customers which had signed contracts earlier in the year, successfully went live with Yotta software which the team delivered and trained remotely.

Iomart, the cloud computing company, has announced that Reece Donovan, Chief Operating Officer, will assume the role of Chief Executive Officer from 1 October 2020, following the departure of Angus MacSween, after over twenty years as CEO.

Sopheon, which provides enterprise innovation management solutions, announced that Orion Engineered Carbons, the Luxembourg-headquartered manufacturer of specialty carbon blacks and rubber carbon blacks, has selected Sopheon's SaaS-based Accolade platform to replace outdated legacy systems.

LoopUp, the cloud communications provider, has signed a significant new contract with one of the world’s top-5 law firms. This contract follows two other top-100 global law firm wins secured during July and August 2020. The company has also announced it has expanded its existing partnership with C&W Communications, which provides telecommunications in the Caribbean and Latin America, in a new contract which will run through to the end of FY22.

VR Education, the virtual reality technology company in the education, communication and virtual events space, announced a 37% jump in H1 revenues to €681k while the loss before tax eased slightly to €1.1mln. The ENGAGE platforms revenue accelerated during H120, representing 33% of revenues, and this increased to 68% post the period – with showcase experience revenues generating a lower share of revenues as ENGAGE ramps up. Net cash rose to €3.2mln over the six months, from €1.3mln at end-December, boosted by a €3mln subscription by strategic partner HTC during the period. The cash position now stands at €2.9mln with a burn rate of c €200k per month. However, revenues are expected to ramp up in H1, with the key HTC partnership going live in Q4 with the Chinese language version of the product. Consequently, the company says it is currently on track to meet FY20 expectations. The Covid-19 pandemic has created an enormous amount of interest in the ENGAGE platform to replace traditional events, such as industry conferences, and following the release of the mobile version in July, participants are not required to wear VR headsets. This, along with the alliances with HTC, VictoryXR in the US and Virtual College, and the transition to 5G telephony which is expected drive demand for VR headsets, the indications are that the business is at a major inflexion point with revenues anticipated to ramp up over the coming months.     

DeepMatter, which is focused on digitising chemistry, announced a 149% jump in H1 revenue to 536k as the operating loss slipped by 31% to £1.2mln. The group finished the period with net cash of £2.0mln and raised a further £2.05mlm (net) via a placement in July. The company is focused on helping life science companies optimise their R&D programmes and the shift to homeworking, as a result of the pandemic, has been a driver. The five year goal is to reach revenues for $10mln through organic growth supported by M&A when appropriate.

Dev Clever, the developer of careers guidance and development platforms, said that FY20 trading is in line with management expectations. Also, the company announced a materially significant contract win, recently securing its largest commercial contract, worth US$1.2mln, to undertake two COVID-19 careers impact assessments: one in the US in September 2020; and a further assessment in India planned for October 2020. Further, the partnership agreements with Lenovo and Veative, which enable the combination and central marketing of each business' complementary products, are starting to attract significant interest from both existing and potential customers.

Centralnic, the provider of internet domain names and related services, has announced plans to acquire the Poland-based Zeropark and Voluum businesses, together called Codewise, from three Poland-based entities for US$36m in cash. Headquartered in Krakow, Poland, Codewise provides services to domain name owners and website operators so that they can generate recurring income from the monetisation of traffic to their website. The acquisition will bulk up CentralNic's monetisation business, which mostly reflects the acquisition of Germany-based Team Internet in December 2019. In the 12 months to 30 June 2020, on an unaudited basis, Codewise generated revenue of US$60.3mln and pro forma adjusted EBITDA of US$ 7.4mln.  Hence, CentralNic is paying a modest 4.9x EBITDA for Codewise. In addition, it has identified c US$1mln in synergies.

Small cap software & services market roundup

Seeing Machines surged 28% over the week, following the announcement of its new embedded product strategy for automotive driver monitoring systems (DMS). Other small cap winners included Blancco Technology, up 18%, and Bango, up 13%.

Recent UK tech sector fundraisings

CentralNic raised £30mln gross, via the placement of 40mln new shares at 75p. The proceeds will be used to fund the acquisition of Codewise, representing the Poland-based Zeropark and Voluum businesses.Source: Data from regulatory news and company websites. * Key: P- placing, S-subscription, O- open offer, R- rights issue.

Tech calendar

The interim results season is in full swing in the UK small cap space over the next few weeks. There is also a scatter of final results over the next few weeks from companies with periods ending April, June and July.

Among large caps, Learning Technologies Group PLC (LON:LTG) reports interims on 22nd September and Spirent holds a capital markets day on 8th October.

We are not aware of any notable tech results in the US this week. However, Apple is holding a special event on Tuesday where new products are expected to be unveiled.

Source: Data from regulatory news and company websites

Small-cap software & services valuations

The sector ratings look fair in comparison with the UK 350 large caps, given the significantly stronger growth potential, combined with the relatively strong balance sheets.

Source: Data from regulatory news and market sources


Add related topics to MyProactive

Create your account: sign up and get ahead on news and events


The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...



Medica: Potential to expand into the wider telemedicine space

Proactive analyst Ed Stacey presents his research on Medica Group PLC (LON:MGP) which is the market leader in the provision of teleradiology services to the NHS.  Stacey explains how this market has been growing strongly across the globe in recent years. In the UK the National Health...

1 day, 12 hours ago

10 min read