When the topic of technology stocks comes up, most investors think of the big boys listed on the NASDAQ such as Facebook, Amazon.com and Alphabet. However, while the majority of the world’s largest tech stocks are listed in the US, the UK is home to some interesting technology companies, especially at the smaller end of the market. Here’s a look at two such firms.
FDM Group
FDM Group (LSE: FDM) is a UK-based professional services firm that provides IT consultants to its clients, assisting with activities such as business analysis, data and operations services and cyber security. With ops in the UK, North America, Europe and Asia Pacific (APAC), and 50% of sales coming from outside the UK, the company is well-diversified geographically.
The technology landscape is changing at a rapid rate and as a result, FDM Group has enjoyed strong demand for its services in recent years. Indeed, revenue has surged from £97m five years ago to £189m last year, and earnings per share have tripled in that time, from 8p to 24p per share. The group released half-year numbers this morning, and the momentum shows no sign of slowing down.
Revenue jumped 35.4% to £117.1m, and profit before tax rose an impressive 32.9% to £20.6m. Cash flow generated from operations increased 27.4% to £20m and the company generated adjusted basic earnings per share of 15.5p, up 34.8%. Growth across the North America and APAC divisions was particularly strong, with revenue in these regions rising 56% and 137% respectively. Chief Executive Rod Flavell stated that the board anticipates the group’s performance for the full year will be “comfortably ahead of its previous expectations.”
After a 44% share price gain over the last year and a 10% spike today, FDM now trades on a forward P/E ratio of 31, meaning that the stock isn’t cheap. Having said that, there’s a lot to like about the business. Demand for its services should remain strong in coming years, cash flow is healthy, and the company even pays a dividend of around 2.5%. Furthermore, the stock recently entered the FTSE 250, which should increase institutional interest. With that in mind, I’m going to keep a close eye on FDM Group shares in the hope that a pull-back creates a more attractive entry point.
dotDigital Group
Another strong performer in the tech space in recent years has been dotDigital Group (LSE: DOTD), a company that specialises in email marketing.
I’ve owned shares in the £208m cap minnow for a few years now, and have been consistently impressed at the growth the company has generated in this time. For example, in the last three years alone, revenue has more than doubled and net profit has rocketed from £0.7m to £6m.
The company released a trading statement on July 18, and the numbers looked good, with overall revenues increasing by 19% to £32m and average revenue per client increasing 24% to £715 per month. The company recorded growth in revenue outside the UK of 48% and had a strong cash balance of £20.4m at June 30.
On a forward P/E ratio of 31, this is another stock that isn’t particularly cheap however, if the company can continue to grow at the current rate, I see no reason why the shares can’t continue to rise in the medium-to-long term.
