Kainos profits double as NHS demand surges

IT provider Kainos (KNOS) confirmed its place in the stable of Covid-resistant businesses during the first half, unveiling adjusted pre-tax profits that were more than double the same period the prior year.

Revenue from the healthcare market - which now accounts for almost a fifth of the group total - saw the highest growth. The group’s involvement in NHS services including home testing and Northern Irish track and trace efforts helped drive revenue up almost three-quarters. However, revenue from the commercial digital sector declined 15 per cent as customers halted spend on digital transformation projects. Activity started to recover during the summer months, management said. 

After pausing recruitment in the immediate aftermath of the pandemic outbreak, hiring has resumed at a normal pace and meant staff and contractor numbers increased by just over a tenth. However, management intends to keep a rein on operating expenses while uncertainty around the pandemic persists. 

This meant that just over 120 per cent of cash generated by operations was converted into adjusted cash profits, which boosted cash balances by almost two-thirds since the end of March. Shareholders have been rewarded not only with a special dividend but a hefty rise in the ordinary interim payment. The share price has more than doubled over the past 12 months and trade at a forward price/sales ratio of 6.9. However, with the long-term revenue drivers still intact, including its place as the leading European implementation partner of Workday’s push into the continent, we think there is room for a further re-rating. Buy. 

Consensus forecasts for 2021 adjusted pre-tax profits and EPS stand at £47.5m and 30.9p, respectively, falling to £43.9m and 28.5p in 2022.

Last IC view: Buy, 978p, 27 Jul 2020