In hindsight, Kainos’ (KNOS) efforts to diversify away from government work five years ago was a wise move, given the state's subsequent hesitancy to spend on new digital projects. That trend was evident in the six months to September. Though the digital transformation division saw a 20 per cent rise in revenues from public sector customers, commercial clients increased their purchases by 70 per cent.
The group is reallocating resources accordingly. “[It] allows us to move some of our best staff off our government contracts and onto our commercial contracts,” chief executive Brendan Mooney told us. Revenues from the workday services division – which provides financial and human capital management software and consulting services to a largely commercial client base – saw revenue growth of almost two-thirds during the period, and now represents 23 per cent of the digital services business's top line, up from 18 per cent a year ago.
International expansion also meant headcount was up by almost a fifth, while the proportion of permanent employees increased versus contractors. However, that shift and the adverse timing of staff bonus payments meant cash conversion – defined as the proportion of operating cash generation to earnings before interest, tax, depreciation and amortisation – fell to 60 per cent, compared with 93 per cent in the prior year.
House broker Investec forecasts adjusted pre-tax profits of £25.5m and EPS of 17p for the year to March 2020, rising to £26.7m and 17.8p the following year.
| KAINOS (KNOS) | ||||
| ORD PRICE: | 530p | MARKET VALUE: | £ 644m | |
| TOUCH: | 528-530p | 12-MONTH HIGH: | 684p | LOW: 349p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 32 | |
| NET ASSET VALUE: | 49p | NET CASH: | £41m* | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 67.2 | 8.7 | 5.9 | 2.8 |
| 2019 | 86.9 | 12.0 | 8.0 | 3.5 |
| % change | +29 | +38 | +36 | +25 |
| Ex-div: | 28 Nov | |||
| Payment: | 20 Dec | |||
| *Excludes lease liabilities of £4.4m | ||||
