Anders Tandberg-Johansen, Head of Global Technology and fund manager of DNB Asset Management, presents his long-term ideas for the new year.
27 January 2015. IT shares will remain a focus in 2015. Keywords are the battle for the TV screen (including Google via YouTube), the general shift from offline to online user behaviour and investments in IT infrastructure. What is interesting is that the assessments of the tech sector have not expanded, despite the outperformance in 2014. The expectations for 2015 remain high, but are realistic: the companies in the MSCI World Information Technology Index expect a growth in profit of 23%, far beyond the wider market with 10%. In light of this, the expected price–earnings ratio for 2015 of 16.5 is favourable in comparison to 15.7 worldwide. The progress made by some companies in terms of an efficient capital structure may also be continued in the new year.
Can the tech sector follow up on its speedy growth of almost 30% (MSCI World Information Technology Index in EUR) in 2014? According to the experts of DNB Asset Management, the outlook for the sector is positive. The relative attractiveness of the tech sector is made even more clear when one considers the growth of the operating results (Ebitda) alone and in relation to the company value (EV/Ebitda): technology companies have the opportunity to increase their operating results this by year by 16% (EV/Ebitda 9.1), while global stocks are expected to grow by a mere 2% (EV/Ebitda 9.9). This means that tech stocks will grow eight times faster than the global stock market.
Serious technology drivers
Corporate governance in the technology sector continued to improve last year. Some companies made progress in terms of a more efficient capital structure by increasing stock repurchases and dividends. This trend is expected to persist in 2015. Spending on IT remained on a low level, due to a moderate growth in earnings worldwide, the unfavourable outlook as well as technological uncertainties. The choice between public and private cloud and traditional computing centres, for example, will be drawn out for a few years. However, it is to be expected that the requirements of the companies and the transparency of the range of products on offer will increase rapidly. These will lead to high investments in traditional and cloud-based computing centres. This is why Tandberg-Johansen is convinced that this kind of expenditure will increase.
The battle for the TV screen heats up
What are the focuses this year? According to Anders Tandberg-Johansen: ‘We are concentrating on the winners and losers in the battle for the TV screen.’ DNB is currently seeing the beginning of the unbundling of cable TV packages and expects that this will accelerate over the course of the year and have more diverse effects than the assessment of the media and infrastructure companies affected currently reflects. The shift from offline to online is continuing in other areas, and DNB has recently also set its sights on the travel industry. Big online players such as Google and its battle for the TV screen remain in focus as does the topic of security which, due to high valuations, can however only be tackled in the long term to a limited extent. Some traditional names that have made progress with the cloud and are convincingly valued are also of interest. The Internet of things also has some interesting names ready.
Tandberg-Johansen’s favourites for the long term
The list of exciting names for the long term includes Oracle. The company is currently going through a volatile phase with mixed results because it is expanding its cloud offer. Investors are concerned that the company will lose its dominant market position in the area of databases and applications. Although Oracle began moving in the direction of the cloud rather late, DNB believes that it has meanwhile quickly caught up and is creating a competitive offer. The most recent quarterly report was well received by the market and attested to this: the cloud turnover grew by 32%, while orders increased by nearly 100%. In contrast to prevailing market opinion, DNB is convinced that traditional software companies like Oracle, SAP and Microsoft will in fact gradually increase in competitiveness.
Expedia profits from the switch to online bookings
Expedia, the world’s largest full-service online travel agency, is again one of the attractive long-term prospects. Online travel agencies are taking over the market shares of traditional providers rapidly and offer customers more flexibility, hotel reviews on a wide basis, a larger selection and often better prices. A UBS study predicts that by the end of the year nearly 40% of all hotel bookings will be made online. Until now, Expedia has concentrated more on airline tickets than on hotel bookings. However, the share of hotel offers has been able to be increased significantly each quarter.
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