Is the UK devoid of tech companies?

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High tech and the “old economy”

I have long argued against the common misperception that the UK stock market is devoid of tech companies in previous commentary.

It’s easy to fall into the trap of believing our domestic financial market is simply replete with “old economy” stocks such as miners, oil majors and banks.

Investing in old economy businesses – the large, well-established firms, which have traditionally been associated with comparatively low volatility (i.e. less likely to change rapidly and unpredictably) and consistent returns – might sound like yesterday’s news.

However, with the Magnificent 7, comprising Apple, Nvidia, Tesla, Microsoft, Meta, Amazon and Alphabet, dominating headlines and investment portfolios, it is important to remember that they are not the only investments which could stand to benefit from driving a more digital economy. There are others right here in the so-called old economy which are showing signs of prosperity in my view.

The unsung stars of UK tech

Think of BAE Systems, which is among companies listed on the UK’s FTSE 100 Index, the company share index which tracks the performance of the 100 largest companies on the London Stock Exchange. BAE Systems is using high end technology to enhance its offering and increase efficiency

What’s less well known about BAE is the highly sophisticated technology it has been working on in partnership with universities, for example, wearable cockpit technologies.

It has also been using AI to develop autonomous capabilities within jets, as well as eye tracking technology which could enable pilots to control their aircraft with the “blink of an eye”. I am no tech expert but, to me, this seems as sophisticated as any wearable device in Apple’s catalogue, yet the difference between the way that BAE and Apple are valued by investors is stark.

Meanwhile Smiths Group, which is best known for carry-on baggage X-ray scanners and explosives detectors at airports, is using its engineering expertise to tackle challenges from energy efficiency to global connectivity.

Smiths Group has enjoyed strong market positions in several niches for more than 170 years. Its recent innovations are partly thanks to its older ones, given the company’s propensity to capitalise on its existing technologies to solve problems in an entirely different application.

For example, CT scanning, which employs advanced X-ray technology, was initially used in Smiths’ former medical unit, however this was extended to airport security systems and high-volume air cargo screening.

Smiths is also innovating in green technology solutions within its energy and industrials unit, John Crane. Green solutions include upstream pumping seals used in water intensive industries, which save customers an average one million gallons of water per seal per year.

Informa, the FTSE 100 Index operator in global events management and academic publishing, re-emerged from an existential crisis after the pandemic. Its events management business was hit particularly hard by lockdowns, travel bans and show cancellations, forcing it to explore other sources of revenue.

As COVID-19 restrictions were gradually lifted, it found new ways to collect and monetise data from its exhibitions, for example by tracking attendees’ movements during trade shows to gauge interest in a given exhibitor, data which was subsequently provided to the exhibitor for further follow up.

Some of the pilot initiatives developed by Informa are now being used as powerful sales and marketing tools to generate new business. The company also launched Lead Insights, its own lead management, scoring, rating and tracking platform. It analyses data from Informa’s online platforms to provide external marketeers with sales leads and is likely to become an increasingly valuable asset over time in my view.

Informa’s academic publishing business Taylor Francis is also proving to be a rich source of content and data for AI companies. The company announced an agreement granting Microsoft access to Taylor Francis’ 2,700 academic journals to hone its AI capabilities last year.

We believe this avenue could become a more substantial new revenue stream for Informa if other tech companies follow Microsoft.

GSK, the British multinational pharmaceutical and biotech firm is another underappreciated tech adopter in the UK market.

Its research and development capabilities were bolstered by masses of patient data being collected during the pandemic.

The company has said: “In a single quarter in 2020, we generated more data than we had in our company’s previous 300-year history.”

Through AI and machine learning, GSK can now better understand the patient groups likely to benefit from drugs and other treatments within its pipeline. For example, it is developing algorithms to help identify patients at risk of developing hepatitis B, including those who may not even be aware that they carry the virus.

According to the World Health Organisation (WHO), only 13% of people living with hepatitis B are aware of their infection, with just 3% undergoing treatment, leaving remaining carriers at risk of developing serious long-term consequences of the disease.

Scratching beneath the surface

Despite such examples, and the listing of computer maker Raspberry PI on the London Stock Exchange last summer, in many investors’ eyes the UK remains on the periphery – or even another planet – as far as tech goes.

Meanwhile, the adoption of AI, data and digital tools continues to proliferate amongst UK companies. Those with global reach and scale, and significant financial resource to invest in innovation, research and development, are at a particular advantage.

The idea that the FTSE 100 Index is rich with high-tech investments may seem absurd at first. But scratch beneath the surface, and advanced technologies are exactly what you’ll find.