UK technology stocks make up just 1% of the Morningstar UK Index, but the sector has an outsized influence on investor perception of the domestic stock market. While we don’t have a Magnificent Seven, investors shouldn’t dismiss homegrown tech stories, experts say.
For Henry Lowson, head of UK alpha equities at Royal London, the problem has been that tech stars are snapped quickly and taken private, among them Darktrace, IQGeo, Spirent and Echo. “Technology is a popular place for M&A in the UK market,” he says, adding that there haven’t been any big-name IPOs either.
Sector morale was not helped when Arm Holdings, a Cambridge-based chip designer once owned by SoftBank, chose to go public again in New York in 2023, shunning London despite intervention from UK politicians.
Kathleen Brooks, research director at XTB, says the UK tech sector is impressive but there is a problem when companies get to a certain size:
“We are one of only three economies in the world with a technology sector worth over a trillion dollars, and we are the leaders in Europe. We are very good at getting tech companies off the ground and starting them. But when we get to unicorn level it kind of halts.”
Which Listed UK Tech Stocks Do Managers Like?
Tineke Frikkee, portfolio manager of the Waverton UK Fund, which has a Morningstar Medalist Rating of Bronze, backs Sage Group SGE as the leading UK technology company.
The £14 billion company, which accounts for 3.47% of the fund, provides financial, HR, and payroll software to SMEs. It is the leading stock within Morningstar’s UK Technology Index, which returned 17% over the three years to Jan. 22, 2025.
Frikkee argues that Sage’s dominance comes down to its successful penetration of the US market.
“Sage is a UK name that competes well with US companies on a global scale. And because of the move to the cloud, subscription, and AI its growth rate has stepped up,” Frikkee says.
Sage shares rallied on Nov. 20 as it reported earnings. Morningstar analyst Rob Hales said at the time: “Incremental [profit] margin improvement was expected as the company scales its software solutions. However, Nov. 20’s result is a big step up and may indicate a much quicker margin progression going forward.”
Key Morningstar Metrics For Sage Group SGE
Analyst: Rob Hales, CFA
- Economic Moat: Narrow
- Fair Value Estimate: GBX 1000.00
- Morningstar Rating: ★★
Sage’s main competitors are US multinational software companies Intuit and Oracle.
A key growth driver for the company is Sage Intacct, its financial software package spun out of its 2017 acquisition of Intacct.
Halma is an Acquirer of Growth Companies
Charlotte Ryland, co-portfolio manager of the CCLA CBF Church of England UK Equity fund, which has a Morningstar Medalist Rating of Gold, is a fan of Halma HLMA.
Halma acquires companies across a range of growth sectors providing support ranging from capital to IT.
Ryland says Halma is difficult to pigeonhole because the company has multiple subsidiaries focused on sectors ranging from safety, the environment, and to healthcare.
“There are a lot of different businesses under the tin but what links them all together is that they are niche businesses that have a high return on invested capital,” she says.
“We see Halma as a steady compounder as they find more opportunities. That is what drives greater returns for them,” Ryland adds.
Morningstar analyst Matthew Donen says of Halma’s competitive advantages:
“Halma’s industry-leading profitability is underpinned by acquiring small to medium-size businesses in niche markets with relatively small total addressable markets. Consequently, Halma enjoys a leading market share in many of the group’s product categories and may only have a handful of competitors in other areas.”
Key Morningstar Metrics for Halma HLMA
Analyst: Matthew Donen, CFA
- Economic Moat: Narrow
- Fair Value Estimate: GBX 2600.00
- Morningstar Rating: ★★★
More than a third of Halma’s 50 businesses operate domestically in the UK, although the company hunts for acquisitions overseas.
Last month Halma bought French electrosurgical business Lamidey Noury Medical for around £42 million to gain access to a business that manufactures products used in surgical procedures.
Halma makes up 2.82% of the CCLA CBF Church of England UK Equity fund. It outperformed the Morningstar UK Index over the one year to Jan. 22, 2025, returning nearly 35% versus 18% achieved by the UK index.
Kainos Helps Companies Integrate Workday Software
Ryland also backs software and consumer services company Kainos KNOS. The stock is held at a 1.68% weighting in the fund, although 2024 saw the share price fall around 20%.
Key Morningstar Metrics for Kainos Group KNOS
Analyst: (Quantitative Rated)
- Quantitative Economic Moat: Narrow
- Quantitative Fair Value Estimate: GBX 10.46
- Quantitative Morningstar Rating: ★★★
“If you are going to implement Workday at a large corporate you need somebody to help put that into place,” Ryland says.
Kainos also offers digitizing services to the UK government, including passports and driving licenses.
Nonetheless, the IT consultancy firm saw its public sector revenue fall by around 15% to £62 million in the six months to September 2024. The UK government is a chief client of the firm, and the July 2024 snap election led to the freezing of projects.
Ryland adds of this slowdown: “The trouble for Kainos is that governments are always strapped for cash. And is this going to be a number one priority if you have got elections? But we still think there’s a lot of opportunity for them to do more on the digitalization process. Although, it can be a little bit slow.”
Experian is Really a Tech Stock
FTSE 100 also contains businesses that do not fall under the classification as a “technology” stock that are using it to expand their offerings. Ryland points to credit rating company Experian EXPN as a prime example.
Key Morningstar Metrics For Experian EXPN
Analyst: Rajiv Bhatia, CFA
- Economic Moat: Wide
- Fair Value Estimate: GBX 3900.00
- Morningstar Rating: ★★★
“Experian is a credit bureau that gets classified as an industrial. But if you look under the hood, they are taking a lot of data about consumers and they are using that for fraud detection,” Ryland says.
“They are using that data to help them market financial products better, to analyze what people want and not just what is happening to their credit cards. So, it may not be classified as technology, but technology is what is driving the growth of the business.”
Morningstar analyst Rajic Bhatia argues that Experian already operates in the mature markets of the US and is looking further afield:
“Experian has developed a dominant position in Brazil, and we think the growth of middle-class populations in emerging markets and favorable regulatory changes (such as the use of more data types) will drive long-term growth.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
