We have updated our key picks in the tech sector following last month’s reporting season and ahead of potential catalysts we can see. Our updated key picks are:
- The Citadel Group (CGL): Remains our number one pick in the sector given the strong growth outlook and the transition from a managed services provider to more of a software and services company;
- Infomedia (IFM): A new key pick given the anticipated relatively weak 1HFY18 result has now passed and the outlook is for a much better 2HFY18 result and then strong growth in FY19; and
- Technology One (TNE): Remains a key pick given the PE ratio discount to other high quality tech stocks (e.g. Altium and WiseTech Global) and ahead of what we expect to be a year of very strong earnings growth in FY18.
We last updated our key picks in early December and the stocks were CGL, TNE, Senetas (SEN) and Appen (APX). The key changes we have made today are to add IFM given the strong growth outlook for the next 18-24 months and to remove SEN and APX given we downgraded our recommendations on both last month to HOLD.
Updated key sells: WTC
Our key sells in early December were WiseTech Global (WTC) and Altium (ALU) though we then upgraded ALU to HOLD in mid December following an increase in global M&A activity in the sector (e.g. Oracle bidding for Aconex and Thales buying Gemalto). We still have, however, a SELL recommendation on WTC following a weaker than expected 1HFY18 result and a reduction in our price target from $10.00 to $9.00. This, therefore, is the one key sell we have in the sector.
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