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Kainos set for ninth year of growth

The IT group saw revenues rise more than 60 per cent, buoyed by momentum in digital services
November 26, 2018

Kainos (KNOS) had already revealed in September that its full-year numbers were likely to exceed expectations – sending the shares up considerably on the day. Thus, a muted market reaction to the official first-half results was unsurprising – even while management said it anticipates a “ninth consecutive year of growth”.

IC TIP: Buy at 420p

The IT group’s top-line growth was entirely organic, benefiting from a 75 per cent improvement in sales within the digital services business to £57.2m. Signalling continued diversification, revenues from commercial customers (as opposed to governmental) rose more than a quarter to £12.9m. Moreover, the services backlog increased by 58 per cent – bringing enhanced future visibility.

Digital platforms also fared reasonably well, with 13 per cent revenue growth to £9.9m. Admittedly, sales orders fell 8 per cent to £7.8m, because of lower demand for Kainos’s ‘Evolve’ healthcare offering amidst ongoing NHS funding challenges. The future shortfall in funding faced by the NHS will depend on the level of cost savings, which could present opportunities for digitalised systems.. 

House broker Canaccord Genuity expects adjusted pre-tax profits of £21m and EPS of 13.2p for the March 2019 year-end (from £15.4m and 10.4p in FY2018).

KAINOS (KNOS)   
ORD PRICE:420pMARKET VALUE:£517m
TOUCH:417-424p12-MONTH HIGH:475pLOW: 292p
DIVIDEND YIELD:1.8%PE RATIO:38
NET ASSET VALUE:37pNET CASH:£38.8
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201741.46.84.72.0
201867.28.75.92.8
% change+62+28+26+40
Ex-div:6 Dec   
Payment:28 Dec