As technology disruption continues to impact the business landscape, I'm taking a look at investing in these two under-the-radar small-cap technology shares.
Carving a niche
First up is Ideagen(LSE: IDEA), an information management software company. It is a serious player in highly regulated industries, with a particular focus on GRC (Governance, Risk and Compliance) and Content and Clinical solutions within the Life Sciences, Aviation and Financial sectors.
And while this puts in competition with some of the big players in industry like IBM, Oracle and SAP, Ideagen's focus on its core markets and complete information lifecycle solutions has earned it a reliable customer base that includes many big blue-chip names, such as BAE Systems, Emirates, Royal Dutch Shell and the European Central Bank.
Although its shares are up a staggering 62% over the past 52-weeks, they have come off a bit in recent weeks, which could mean that this may be a good time to step in.
The company is set to announce its full-year results on 18 July, but in a pre-close trading update, Ideagen said it expected earnings to be in line with market expectations, with organic revenue growth of approximately 10%.
City analysts expect Ideagen to punch growth to the tune of 14% for the year to 30 April 2017, with a further 28% increase anticipated for this year. These estimates suggest shares in the company currently trade at an expected P/E of 28, with a forward P/E of 21.9 on this year's expected earnings.
Another company worth considering in the same industry is Microgen(LSE: MCGN). Shares in it are up 71% year-to-date, following a strong financial performance in 2016 and news of significant new contract wins over the past year. For the 2016 full year, Microgen reported overall revenue growth of 35% to £43m, as adjusted earnings-per-share (EPS) increased by 34% to 12.3p.
Looking ahead, I reckon Microgen has a couple things going for it. First, a growing number of companies increasingly realise that they pretty much have to invest more in financial management applications in order to modernise their finance IT infrastructure and address increasingly strict regulatory reporting requirements. This should drive structural growth in the market, with Microgen's recent strong run of new contract gains proving there's a significant place for niche players as the market expands.
Second, the company is increasing investment to develop additional specialised financial management software applications as new opportunities are identified. There's room for expansion as it diversifies to different parts of the asset and governance spectrum and its acquisition-led growth strategy could help it to strengthen its position in the financial services and wealth management software market.
In the near term, City analysts expect Microgen's bottom line to grow by 3% this year, with a further increase of 13% in 2018. This leaves shares in the company trading at 25.1 times its expected earnings this year, and 22.2 times its expected earnings in 2018.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.