The UK technology sector has had a volatile year with poor market sentiment having replaced the enth...
The UK technology sector has had a volatile year with poor market sentiment having replaced the enthusiasm seen at the beginning of the year.
Trevor Green, UK equity fund manager at Credit Suisse Asset Management says: "This time last year technology was performing well on the back of strong newsflow, alliances and joint ventures. This led to earnings estimates being upgraded for the year and the market being very optimistic with growth forecasts going forward."
He points out that this year earnings and growth forecasts have been being brought back since August and valuations having reached extreme levels earlier in the year, led to them falling. At the moment, the lead is taken by the US and until the Nasdaq turns around the UK sector will not perform well."
"From the US we are still getting earnings downgrades and companies are reporting mixed trading. The market is more sceptical and people are looking for improved trading statements. Sentiment will not turn overnight but will take time to turn around."
David Clark, investment manager at Britannic Asset Management, notes that before the market correction in March some technology companies were trading at P/Es of 200 times whereas now valuations look more sensible.
Credit Suisse is neutral technology against the FTSE All-Share benchmark. It has holdings in Misys, which provides software to financial institutions and reported a positive trading statement in November.
Since the share price fell dramatically it is attractively valued, Green says. For the year to 30 November, Misys has fallen 48.2%, compared to the FTSE All-Share returns of -9.16%. Over the month from 31 October to 30 November the stock has fallen 30.78%.
Britannic is underweight technology by around 1%. It has holdings in Logica, a computer services company, which has a strong position in the mobile telephony market.
It is well run with good earnings visibility and has a product it is selling to a hungry market, Clark says.
The group also has holdings in Sage, which sells off the shelf accounting packages to small and medium sized enterprises. It is well spread geographically with a presence in Germany, UK, France and the US. It also has a good internet strategy, Clark says.
Green believes the companies most likely to come under pressure in the sector are those with exposure to telecoms.
He also notes that many dot.coms saw their business models come unstuck very quickly and he thinks it will continue to be hard for them as it will be difficult to find the necessary funding.
Clark says: "Dot.coms can be fine but in general their business models are not yet proven. The most fun to be had is with companies with long established brands that have gained a niche market they can translate to a web presence. Reed is doing very well, putting its publications online. Emap is trying to set up businesses on the web and Pearson has an interesting web presence."
Clark believes that there is now more realism about the new economy era than there was earlier on in the year.
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