Kin and Carta drives pure-play strategy

Kin and Carta (KCT) is in demand. Having sold off its legacy businesses for £33mn, the consultancy is now focusing solely on digital transformation. Customers are plentiful. As well as bagging clients such as Wayfair, Wendy's and L’Atelier this year, it has a record order backlog of £106mn. 

Business in the Americas is particularly buoyant. In the six months to 31 January, net revenue grew by 76 per cent to £58.5mn. The region now accounts for almost 70 per cent of total revenue. European revenue growth was also strong, however, up 41 per cent at £27.1mn. 

By divesting its non-core businesses, Kin and Carta has also been able to pay down its bank debt and make a series of acquisitions. The consultancy ended the half year with a net cash position of £5.4mn, compared with a net debt position of almost £20mn in July 2021.

So far, so good. However, Kin and Carta is still making a pre-tax loss – albeit a smaller one than in 2021. Selling costs are particularly high, having risen by almost 75 per cent, compared with a 60 per cent jump in revenue. 

Staffing could also prove an issue, given the current state of wage inflation. Kin and Carta said it is mitigating market salary inflation by “higher pricing” and “adding more junior talent”. These two statements seem at odds with one another, however. Consultancy is dependent on experience and expertise, and the company prides itself on its “highly specialised technologists, strategists and creatives”. If it becomes too focused on building a cheap workforce, it risks losing its credibility – and high fees. 

Thus far, however, the group has maintained an operating margin of 10-11 per cent and demand is still high. Hold. 

Last IC View: Hold, 265p, 27 Oct 2021