Companies: ARK    BDI    CIV    CSR    HRR    SOG    TIK   

If you're still steering clear of technology stocks you're missing a trick because upbeat attitudes, improved results and a steady stream of IPOs are transforming the sector

After almost four years of doubt and despair the indications are that – for the UK's technology, media and telecoms companies at least – the times they are a-changin'.

As so often proves to be the case, confidence is the key. TMT chief executives are no longer talking in terms of difficult trading conditions and corporate restructuring but are instead exuding cautious optimism. The glass, it would seem, is now most definitely half full.

A recent survey of techMARK CEOs, conducted by accountancy firm PricewaterhouseCoopers, illustrates the extent of the attitude change. In its second annual Green Shoots survey PwC concluded that techMARK CEOs are no longer 'waiting for the thaw' but are actually preparing for growth.

59 per cent say they now view increasing profitability as their main task for 2004 – a staggering 21 percentage point increase against 2003. Moreover, management opinions towards mergers and acquisitions are also shifting, with 89 per cent of CEOs recognising M&A potential in the current market and 59 per cent viewing equity as the most viable financing option available. 12 months ago only 26 per cent were prepared to champion the benefits of equity issues.

Underpinning this attitude change has been a succession of encouraging results from high-tech firms in recent weeks – particularly in the small cap software arena. As foreshadowed here last month, full year figures from recruitment industry software developer Bond International and asset management software business Statpro both revealed a move from losses to profits and, in the case of the former, also delivered news of the $5 million acquisition of rival unlisted Ezaccess.

Fellow software AIM-listed software developers AFA Systems, Harrier and Tikit, meanwhile, have been among a host of others reporting vastly improved figures of late.

But perhaps the most compelling evidence of all to suggest a return to growth has been a noticeable surge in hi-tech IPO activity.

Since 1 March techMARK has welcomed two new members, namely biotech Ark Therapeutics and wireless solutions business CSR. As for AIM – still the hub of London's new issue activity – it has witnessed five significant hi-tech fundraisings, those involved gleaning an impressive £98.5 million between them. Compare this to March 2003, a month dominated by the build up to and subsequent start of the Iraq war. Back then only three new firms ventured on to AIM raising a modest £2.1 million between them. Not one of those businesses was technology focused.

It has not just been a case of improving quantity either; the quality of those arriving of late has also been high. Public sector-focused IT consultancy Civica, for example – which raised £15 million for itself and £30 million for its existing shareholders on arrival – is already a substantial business, having generated a £9.3 million pre-tax profit on £90.3 million of revenues last year.

Likewise Torex Retail, the retail solutions company demerged from techMARK-listed iSoft on 2 March, is also strongly profitable and secured a similar amount of cash pre-launch.

Individually, each of these phenomena (upbeat attitudes, improved results and a steady stream of IPOs) are encouraging. Collectively, however, providing momentum can be sustained over into the summer months, they offer compelling cause to infer that a technology renaissance is in the offing.

The reasoning is simple. When times are tough IT and advertising budgets are usually the first to be cut, yet conversely, when all is right with the market they often receive the greatest boost. An upswing in TMT prosperity therefore reflects improvements in almost every other industry. The future looks far brighter than it has for some time.