UK technology stocks have soared in 2019, matching or beating the performance of much better-known benchmarks for leading technology companies such as the Thomson Reuters Global Technology index or the US-based NASDAQ.

While recent technology headlines have been captured by Uber’s IPO, Apple’s iPhone sales, intensifying competition for Netflix or a tightening regulatory screw on social media companies, many UK technology stocks have been quietly knocking the lights out.

Year-to-date the FTSE All-Share Technology index has rallied 23.4%. That’s better than NASDAQ’S 20% gain and far surpasses the near-11% rally in the FTSE 100.

You might think this eye-catching performance so far in 2019 is being driven by fast-growing, highly-rated tech stocks, but you’d be wrong.

UK TECH: WHO ARE YOU?

While some of the world’s largest companies – Amazon, Microsoft, Apple – dominate technology indices and stock markets worldwide, it is long-established suppliers of IT services and software in areas like accounting, financial services and engineering that power the UK space.

Accounting specialist Sage (SGE) and infrastructure group Micro Focus (MCRO) have provided much of the share price fuel for the UK technology sector so far this year. Worth approximately £7.8bn and £8bn respectively, these are more mature software suppliers which have been around for several decades, where growth is less racy but profits and cash flows are huge.

They are the industry’s sole members of the FTSE 100 index. Together with £5.2bn engineering design firm AVEVA (AVV) – which narrowly missed out of FTSE 100 promotion in February – they account for roughly two thirds (61.8%) of the UK stock market’s technology value.

Micro Focus and AVEVA are two of the sector’s top five performing tech stocks so far this year, up 40% and (nearly) 35% respectively.

Part of the reason for this share price strength is improving investor optimism on the integration benefits of past large and complex acquisitions.

There is also renewed hope that Sage’s new management team can finally get a better grip on cloud delivery, helping lift its share price by 18.3% so far in 2019.

Other strong contributors to the UK technology sector’s strength come from IT reseller and consultancy supplier Softcat (SCT) and digital transformation specialist Kainos (KNOS), where both are seeing surging demand from enterprise and public sector customers alike.

NEW TECHNOLOGY DAWN

But as the world is redrawn with a new technology pen it is worth looking beyond the UK technology establishment for compelling investment ideas.

Companies listed on the AIM junior market are not included in the main benchmark indices and so do not contribute to the performance of the FTSE All-Share Technology index. Yet AIM is home to some of the brightest emerging stars.

For example, digital workforce tools designer Blue Prism (PRSM:AIM) is a company which Shares recently suggested may be the ‘best growth stock on the UK market’. Worth about £1.2bn, after rallying 43% since 31 December 2018, we calculate that it would now add an extra 3.5% to the FTSE technology sector if it qualified for inclusion.

Shares in Northern Ireland-based big data analytics company  First Derivatives (FDP:AIM) have done even better, up 48% in 2019 so far. Investors seem to be getting their confidence back after the company was targeted in a short selling attack last year, when traders bet that the stock would fall, due to accounting question marks.

Other strong AIM performers this year include global payments platform Earthport (EPO:AIM), the subject of a bid battle between credit card giants Visa and Mastercard, and data replication platform WANdisco (WAND:AIM).

Lastly, GB Group (GBG:AIM), which supplies niche identity data intelligence solutions, last week reaffirmed its long-term growth potential with double-digit growth metrics.

It is arguably a mistake to think the UK is going to create a technology giant to compare with Google or Facebook – most experts believe it highly unlikely, if not impossible. But the UK is certainly not short of promising technology businesses with plenty of scope for future growth.

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