Kin & Carta searches for cheaper workers

Companies are scaling back spending on advertising but pushing forward with their IT investment. Digital transformation consultant Kin and Carta (KCT) is in high demand, with a record backlog of work and a pipeline that is up 74 per cent on last year. The problem for Kin and Carta is how to turn this growing demand into a statutory profit as wage inflation grows in the technology sector.

In the full year, net revenue increased 48 per cent to £190.3mn. Kin and Carta was doing more work but its backlog still grew to a record £96mn. This suggests next year’s top line will keep growing as it makes its way through a stack of work. Another revenue tailwind will come from the strong dollar exchange rate as the Americas make up 69 per cent of total revenues.

Although Kin and Carta's services are in high demand, it still made a statutory loss before profit of £15.9mn. A large part of this was due to the £21mn of acquisition-related costs. It also took a £6.2mn impairment on ending a building lease in Chicago and paid £1.6mn in redundancies as it streamlined operations in the UK. When these exceptional costs are stripped out, adjusted profit before tax increased 65 per cent to £17.1mn.

Management plans to boost profitability through price rises, hiring cheaper junior talent and near-shoring. House broker Peel Hunt is sold on the plan. It expects profit margins to improve and adjusted EPS to rise to 11.1p in 2023, which gives a 2023 PE ratio of 16.6. This forward PE looks appealing but is based on some optimistic forecasts. We would like to see some real profits first and stick to hold. 

Last IC View: Hold, 285p, 24 Mar 2022