The big trends of 2019 have meant it’s been a big year for our tech sector meeting fresh demand, disrupting the status quo and breaking new ground. Party manifestos broadly pledge to invest in infrastructure, ultrafast broadband and improving government procurement in research and innovation. As such, our Technology Sector experts have taken to our final quarterly sector report of 2019 to shine the light on four stocks which will make an impact but which lack exposure.
Fast broadband for the unconnected
Broadband was back in the headlines when Labour unveiled its election pledges this year. Whatever your political viewpoint, it’s hard to argue with the fact that costly network upgrades are needed to improve broadband speeds, especially in rural areas, transforming our economic potential. The growth potential for new high-speed satellite capacity, fibre-backed ultrafast fixed wireless solutions, and the impact of greater government funding mean strong opportunities for innovation in this area.
Our pick: Bigblu Broadband
Bigblu Broadband (BBB) provides broadband to homes and businesses in mostly rural areas in Europe and Australia, through satellite and fixed wireless technologies. We’re seeing that the company can achieve strong and sustained growth due to disruptive technological developments and greater government support.
BigBlu benefits from its scale and strategic relationships. It’s likely to see its structural position strengthen as its core technologies transform. Group financials meanwhile have gained momentum due to M&A and organic growth, and we expect it could re-rate to a higher multiple with execution of its strong organic growth potential.
The UK podcast boom of 2019
It’s fair to say podcasts have been a staple of our media diet for some time now, nevertheless Britain has up until now lagged somewhat behind the growth of the US podcast market. Not so any longer; in the UK this year, things really took off. Our consumption of podcasts is now experiencing comparable growth to that of the Americans. As such, the iron is hot for innovative and disruptive solutions to monetise creative content. In a rapidly growing podcast market, podcast creators are looking to effectively distribute, fund, and monetise their content, while consumers and advertisers are aiming to discover and fund the most relevant content.
Our pick: Audioboom
Audioboom is a premium podcast publisher of its own original content and some of the world’s leading podcasts. It benefits by enabling content to be monetised through engaging, host endorsed advertising. Audioboom’s rapidly growing platform is attractively positioned in the evolving podcast industry, and we believe there is strategic value in Audioboom’s data, original content and the Sonic Influencer Marketing platform.
Audioboom cleverly matches podcast creators and advertisers, so that advertisers can deliver effective and relevant messages to consumers - while podcast creators can widely distribute and monetise their content. Audioboom benefits from economies of scale, its valuable dataset on the podcast industry, and growing IP rights as it invests in original content. The company is advancing towards positive EBITDA as it scales its revenue and leverages the investments it has made in its platform.
Housing innovation to go through the roof
Earlier this year we shone the light on how the UK housing market had become more unaffordable than ever. We saw how better innovation to reduce infrastructure costs can be passed on to consumers and the buck doesn’t stop there. Technological disruption is meandering its way into several areas of a challenging UK housing market that is on the turn, leading the firms involved to look towards technology to improve user experience, efficiency and productivity.
Our pick: ULS DigitalMove
ULS provides software to facilitate the conveyancing process, and launched the innovative DigitalMove platform in January 2019. DigitalMove could transform ULS’s growth and structural position, while ULS’s core business is well placed to benefit from a turnaround in the UK housing market.
ULS’s conveyancing platforms enable introducers to search for and choose the best solicitor, solicitors to reduce consumer acquisition costs, and consumers to benefit from competitively priced, high-quality solicitors. ULS’s core business benefits from economies of scale and its independence, but DigitalMove can transform the group’s scale and unlock network effects. The difficult housing environment and competition in ULS’s core market have seen forecasts lowered and the P/E de-rate to 8x, and little value appears priced in for DigitalMove.
Financial services gets ahead in the cloud
Financial institutions and traders require low latency access to the servers of exchanges and brokers, and systems on the whole have not been agile enough to meet the ‘always on’, minute-by-minute demand. Unless they want to spend a lot of money, financial houses face relatively long activation cycles and inflexible capacity when deploying their own infrastructure. Global infrastructure, exchange proximity, low latency and flexible service with specialised support can transform the financial services industry.
Our pick: Beeks Financial Cloud
Beeks provides specialised, cloud-based services to the financial services industry through its globally deployed infrastructure. Beeks provides same day, low latency access to its global infrastructure through a cloud-based and flexible service with specialised support. By leveraging its rapidly growing core business, Beeks can strengthen its structural position by expanding into tier 1 clients, and deliver strong financial growth also through an evolving product offering, and disciplined M&A.
High switching costs, industry recognition, and economies of scale define Beeks’ strong structural position. Meanwhile if Beeks can deliver strong growth in its financials, we expect it will at least sustain its current P/E of c20x and see a substantial increase in its share price.
We’d certainly be interested to discuss our findings further with companies operating in these spaces with considerable growth ambitions. Please contact our Technology, Internet and Telecoms team.