UK technology company performances bounce back
Listed technology companies witnessed a dramatic upturn during
2009 where they saw values almost double (94%) over the year,
according to the
Technology Index from financial and business advisers, Grant
Thornton UK LLP.
The Technology Index tracks the performance of 142 UK-listed
technology-related companies outside of the FTSE 100. It reveals a
steady improvement in the performance of technology stocks which
saw their price index peak in Q4 2009, at the highest level since
Q4 2007. This may signal a re-bound to a more consistently positive
sentiment for the technology industry as a whole after enduring
over a year out of favour with the market.
Technology companies in the index outperformed both the FTSE All
Share and FTSE AIM All share in 2009 which saw increases in value
of 66% and 25% respectively in the last twelve months.
Niki Dixon,
Head of Technology at Grant Thornton said: "Technology stocks
are recovering well from the market downturn. The capacity for
technology companies to generate considerable capital growth over a
short period of time has made the sector an attractive prospect for
investors. The significant level of merger and acquisition activity
has also contributed to the strong performance as larger players
seek out niche acquisitions."
"Although the performance of technology stocks took a big hit
from the market downturn, this recession contrasts to the burst of
the dot.com bubble where many of the key technologies were
relatively untried. We are now in a period where both telecoms,
through the rapid adoption of mobile broadband and smart phone
technologies, and computer services through the adoption of cloud
computing and other service based solutions, have a much stronger
foothold in the market and will secure significant revenue growth
as the wider economy comes out of the recession."
Leading the charge of Q4's index is an increase in the
performance of some of the UK's larger and better established
technology companies such as semiconductor IP group Imagination
Technologies (share price up 46% in Q4 2009), which announced
soaring profits and forecast double digit revenue growth for 2010,
and business software provider Micro Focus International (share
price up 30% Q4 2009), which benefited from increased revenues on
the back of two significant acquisitions.
"Many of the companies within the Technology Index will not have
had to use their funds to restructure financing. Within the sector,
profits are typically reinvested into research and development
rather than paid out as dividends, so many technology companies
would not have been able to secure the large amounts of debt that
were seen in the wider economy. As a result they have been able to
implement cost saving strategies that translate straight to the
bottom line. Most of the companies within the index are also
relatively young and so are not plagued by the problems of defined
benefit pension schemes."
There were some notable exceptions to the index's positive
sentiment however, which include the performance of Nasstar, which
posted increased losses in 2009. Nasstar saw its valuation fall by
60% in the last twelve months.
"Technology stocks often improve ahead of the general market as
the recession ends, especially where customers can use their
products to increase efficiency without hiring staff. The worry is
however, that as one of the hardest hit sectors when the market
dropped, any further blows to the UK economy could reverse the
current rally in share prices and once again we may see technology
shares at the forefront of stocks being sold."