A sixth consecutive year of revenue growth and strong cash conversion was not enough to impress Kainos's (KNOS) shareholders. The shares dropped 7 per cent on the day the software provider reported adjusted pre-tax profit flat at £14m, after stripping out £1m of share-based payments, but the stock price more than recovered that ground over the following week.
The reason for the disparity in the top and bottom line is a 27 per cent increase in adjusted operating expenses as the group doubled research and development expenditure and employed 135 new staff. In the digital services division, this investment is generating results. Revenue there rose 17 per cent to £64.5m as the group continued to benefit from significant engagements with the UK government's 'digital transformation' programme and accelerated growth in workday - a corporate IT system - particularly across mainland Europe.
But the digital platforms business - testing, medical records and integrated care - saw total revenue decrease by 12 per cent to £19m due to a slowdown in the NHS market. Although NHS challenges are expected to continue, management is confident about a return to profit growth in the year to March 2018, due to lower expenditure and wider margins. Broker Shore Capital has forecast pre-tax profit of £15m and adjusted EPS at 10p for the year to March 2018 (from £14.3m and 9.5p in FY2017).
| KAINOS (KNOS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 251p | MARKET VALUE: | £297m | |
| TOUCH: | 250-251.3p | 12-MONTH HIGH: | 258p | LOW: 123p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 28 | |
| NET ASSET VALUE: | 25p | NET CASH: | £23.7m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 29.9 | 3.7 | na | na |
| 2014 | 41.9 | 7.1 | na | na |
| 2015 | 60.8 | 11.8 | 8.9 | na |
| 2016* | 76.6 | 14.3 | 10.7 | 6.0 |
| 2017 | 83.5 | 13.3 | 8.9 | 6.3 |
| % change | +9 | -7 | -17 | +5 |
Ex-div: 21 Sep Payment: 20 Oct *Kainos listed its shares in July 2015 | ||||
