finnCap Tech Chat | You wouldn't believe it

Pouring a flute of Champagne (or more precisely, finnCap’s client Chapel Down’s delicious English sparking wine) at last night’s glitzy AIM Awards proved much more contentious than one would have thought. I was on the receiving end of a glass that was poured level to the table, rather than the classic ‘beer glass’ tilt. Outraged, naturally, I stepped in to correct the technique. A fierce debate ensued in the haze of the bubbles and chatter and I was mortified to be corrected by hastily googled videos showing that the correct way to pour Champagne is in fact with the glass level. I was stunned.

Another fallacy we corrected through our own investigations this week has been the valuation gap between the US and the UK: we published our Joy of Techs quarterly, COVID bounce back delivers full valuations. While examining how UK tech (proxied by the finnCap Tech 40 and Next 50 indices) performed during the depths of COVID throughout 2020 up until October 2021, we also considered how UK tech compare to US tech.

As we established way back in our COVID quarterly of June last year (COVID-19: Valuations in Tech), the ‘creative destruction’ of COVID’s consequences had the potential to accelerate digital transformation and reveal operational efficiencies - and it has done as expected. Recovery in sales and EBITDA growth has lifted growth rates from 7-year lows, to deliver valuations on EV/EBITDA and EV/Sales bases reaching 7-year highs in September.

We have also compared UK Tech performance to US Tech (proxied by Nasdaq Composite) to uncover whether the land of opportunity really does offer just that. The myth has been punctured: Nasdaq trades at 4.2x EV/Sales (12m fwd) vs the Tech 40 at 4.3x, with both forecast NTM sales growth of +13%. Yes, Tech 40 trades at 15.2x EV/EBITDA, a discount to Nasdaq’s 17.7x, showing US investment attitudes are more forgiving to less profitable companies aiming for growth – and also showing they are achieving it, although not by a huge differential, with NTM EBITDA growth rates of +14% (T40) vs +17% (Nasdaq).

Despite COVID-19 challenges, small/mid cap tech has thrived and is well positioned to drive further growth as companies continue to focus on digital transformation and connectivity. Benefactors include (but are not limited to) Access Intelligence, Bigblu Broadband, Intercede, K3 Business Technology, Sopheon, Tremor, and PCI-Pal (see their valuations and growth rates on page 26 of the sector report). Read the report to find out why – and if you can’t access it through the portal, drop us a line.

As it turns out, trying to ascertain the correct Champagne pouring technique has proved harder than anticipated. Apparently, the traditional way is to ‘wet’ the glass with a splash of bubbly without an angle, allowing the bubbles to settle. Then you finish pouring, into the glass at a 90-degree angle, up to 2/3 glass to enable the aroma to fully develop. The second method is the classic ‘beer-glass’ tilt, while still others swear by pouring it straight, pausing every now and again to let it settle. A study published in the Journal of Agricultural and Food Chemistry reveals that Champagne poured like beer retains more CO2 than pouring it straight into the glass, so go down the ‘beer tilt’ route if you'd like to keep the fizz. The best way to make the froth settle quickly is to stick your finger in it, but from former days of waiting tables I always found the customers were rather surprised at that approach. Choose your audience.

Happy Friday