Kin + Carta sees demand and revenue drop

Digital transformation consultancy Kin + Carta (KCT) has blamed worsening economic conditions for its disappointing half-year results. In the six months to January, like-for-like revenue fell 6 per cent. In the Americas it slipped 1 per cent, with a greater fall in Europe of 16 per cent.

Client caution on spending hit revenues, but also the adjusted operating margin, which was down 1.5 percentage points to 13 per cent because of “lower utilisation of delivery staff and project delays”. Management doesn’t expect this to improve next year with it guiding for margins of between 11 per cent and 12 per cent.

This margin contraction came despite near-shoring of staff. By employing people in south-east Europe and Latin America, the company has been able to cut £3mn from its operating costs. If revenue growth matches an economic recovery, then this operational improvement will ultimately leave the company in a more profitable position.

There is some concern that there is more to the revenue stagnation than just the economy. For example, there is evidence elsewhere that companies have not pulled back on IT spending. IT service business Softcat's (SCT) revenue increased 37.5 per cent last year. Meanwhile, none of the UK software companies have yet seen a similar drop in sales. 

Peel Hunt has Kin + Carta trading on a 2024 adjusted price/earnings ratio of just 8.4. That's cheap, but we think it’s justified until KCT shows that it can grow faster than the wider economy. Hold.

Last IC View: Hold, 100p, 12 Oct 2022