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Tech stocks set to push on after strong rebound suggests broker finncap

Tech stocks score better on free cash flow generation and net cash than FTSE All-Share- listed peers

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A strong rebound in technology stocks over the past few months should continue according to the latest quarterly report from broker finnCap PLC (LON:FCAP).

The broker’s proprietary tech indices cover the 90 largest small/mid-cap TMT stocks publicly listed in London and have rallied as investors have been drawn back to the sector.

Several investment yardsticks are close to an all-time high, which reflects the fact that over the next 12 months growth in underlying profits {EBITDA] and earnings per share should outpace similar metrics for the FTSE All-Share.

Tech stocks also score better on free cash flow generation and net cash whereas balance sheet gearing on the FTSE All-Share has risen to more than two times.

While Covid-19 has restrained recent growth, there are three key drivers that are expected to improve the sector’s performance over the next 12 months, added the broker:  Acceleration of the wider economy’s digital transformation;  Increased demand for software in specific industries and greater demand for connectivity and communications networks.  

 Companies best positioned to benefit from digital transformation D4T4 (LON:D4T4), Ideagen (LON:IDEA)and Intercede (LON:IGP) while in increased software demand finnCap highlights payments groups such as Bango (LON:BGO) and Arcontech (LON:ARC), KRM22 (LON:KRM) and other companies focused on financial services organisations as likely to perform well.

In connectivity and communications networks the broker likes Bigblu Broadband (LON:BBB) and Telecom Plus (LON:TEP) and managed services companies such as iomart (LON:IOM), Redcentric (RCN) and Maintel (MAI).

Michael Hill, TMT Equity Analyst for finnCap said: “Even though Covid-19 has affected near term financials, there are a number of factors that we expect to benefit companies within our Tech indices over the next 12 months.

"Namely, the acceleration of digital transformation, increased demand for software in industries such as payments, cybersecurity, and video, and greater demand for connectivity and communications solutions. In the current environment, this makes small/mid-cap TMT stocks an attractive space to watch.” 

Rebalanced each quarter, the T40 is composed of the 40 largest stocks with market caps from £109mn-1.5bn after the most recent rebalance in June, and the N50 includes the next 50 largest stocks with market caps from £18-103mn. 

Quick facts: finnCap Group Plc

Price: 23 GBX

Market: AIM
Market Cap: £39.95 m

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