ii view: IT firm Kainos on track for 14 consecutive years of growth

First-half trading update to 30 September

• Both full-year revenues and adjusted pre-tax profit are expected to match current City forecasts

ii round-up:

IT provider Kainos Group (LSE:KNOS) today flagged its expectations to achieve a 14th consecutive year of growth in key financial metrics as customers maintained investment in digital projects. 

Sales for the year to the end of March 2024 are expected to match current City forecasts at between £418.2 million and £434.2 million, up from last year’s £375 million. Adjusted pre-tax profit is also expected to match forecasts of between £72.6 million and £78.1 million, potentially rising from last year’s £67.6 million. 

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

Shares in the FTSE 250 company rose marginally in UK trading having come into this latest news down by a tenth over the last year. That’s similar to fellow IT group Computacenter (LSE:CCC) and compares with a 2% retreat for the FTSE 250 index itself. 

Kainos works with over 800 private and government run organisations, helping them either transform the delivery of their services via enhanced systems, or in consulting and then deploying the products of partner Workday in providing smart audit, HR and planning software to improve efficiency.

Trading for the Digital Services division continued to be supported by demand from public sector clients, which have in the past included the NHS. 

Both consulting and software deployment businesses in relation to partner Workday had enjoyed ‘strong growth’ year-to-date, helped along by European and North American customers and an expanding global client base. 

First-half results to the end of September are scheduled for 13 November. 

ii view:

Started in 1986, Kainos today operates offices across more than 20 countries in Europe and the Americas. Employing around 2,900 people, it provides both software products and consulting services to organisations across the public, commercial and healthcare sectors. Its digital services division, accounting for around three-fifths of sales, offers full lifecycle development and support of customised digital services. Its Workday practice, with consulting services generating 28% of revenues and products the balance of 12%, is one of Workday's most respected partners. 

For investors, the departure of current chief executive, Brendan Mooney, after 22 years offers some uncertainty. Costs generally for businesses also remain elevated, its partnership with Workday is of high importance, while growing international sales can face currency headwinds. 

• Why tech has another great decade ahead of it
• Stockwatch: why I’ve tweaked my rating on microchip star Nvidia
• Top tech investor on how to profit from artificial intelligence

More favourably, Kainos' own ability to improve other organisation’s efficiency within the tough economic environment likely remains significant. Its incoming chief executive, Russell Sloan, is the current head of its Digital Services division. A diversity of both underlying customer types and geographical regions is present, while bolt-on overseas acquisitions to strengthen its Workday business have previously been made. 

For now, and despite ongoing risks, a current analyst consensus estimate of fair value sat at over £15 per share looks to provide scope for continued longer-term optimism. 

Positives: 

• Business and customer diversity
• Growing sales overseas

Negatives:

• Uncertain economic outlook
• Corporate spending on IT can be unpredictable

The average rating of stock market analysts:

Strong hold