10 UK tech stocks that are on the move

Stockopedia’s Ben Hobson finds the UK companies that make a great alternative to big tech IPOs. 

Huge interest in the recent IPOs of Deliveroo (LSE:ROO) and Darktrace (LSE:DARK) shows just how much the UK market loves the prospect of billion-pound-plus tech company flotations. With software and IT stocks powering the US market for so many years, it’s a sector that excites investors everywhere. But if you’d rather not take your chances with an IPO, there are UK tech firms already on the market that might be worth a closer look.

Technology is a notably under-served sector among UK quoted large caps. Earlier this year, one of the few stars of the FTSE, Just Eat Takeaway.com (LSE:JET) could switch its listing to the States after acquiring a rival there. So it’s understandable that rumours of new mega IPOs attract attention.

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Some of the possible new UK listings currently on the cards include fintech groups such as Wise, Monzo, Starling and PensionBee. With a touted market cap of upwards of £4 billion, Wise (formerly known as TransferWise) would be one of the largest tech IPOs of recent years. But it doesn’t come close to the kinds of prospective US IPOs being talked about, which include the online payments processor Stripe ($95 billion) and social media platform Tik Tok Global ($50 billion).

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While IPOs can be appealing, there are options elsewhere in the software and IT sector for those looking for stocks that are better understood by the market. In the UK, this tends to mean looking much further down the market-cap spectrum for small and mid-cap shares. While these firms can’t offer the vast scale of tech mega-caps, some of them have been delivering strong growth and impressive price returns.

With this simple screen, we took the UK software and IT industry sector and sorted it based on the overall appeal of each stock’s valuation, financial quality and price and earnings momentum. That’s summed up in the StockRank for each share (the higher the better). We also examined the price/earnings (PE) ratios as a general measure of valuation and the expected earnings growth for each share in the year ahead.

The results offer an interesting mix, with predictably high PEs in places, strong price performance over the past year and some triple-digit forecast earnings growth figures.

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Small-caps like the business-to-business enterprise software firms Netcall (LSE:NET) and Cerillion (LSE:CER) have the highest earnings forecasts and strongest price trends. Meanwhile, the larger players, such as tech infrastructure rivals Computacenter (LSE:CCC) and Softcat (LSE:SCT), rank strongly but have more modest growth outlooks.

Source: Stockopedia. Past performance is not a guide to future performance

While these names may not offer the glamour and frenzied anticipation of a blockbuster IPO, they are arguably a useful place to start in the search for tech stocks with the power to grow.

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In the UK market, the most exciting growth plays tend to be found in the smaller-cap indices. And while valuations in the sector are likely to be rich in places, the chances of finding shares that can re-rate strongly might be higher than navigating a new IPO.