ii view: Kainos shares attack new high

This IT provider has proved a pandemic winner and the shares are near their all-time best. Here’s why. 

Trading update from 16 November to 22 January

ii round-up:

Information technology provider Kainos Group (LSE:KNOS) pushed full-year profit expectations higher as it outlined strong pandemic aided trading.  

The Covid crisis continues to accelerate the need to both digitalise written medical records for its major customer the NHS, and improve staff productivity tracking software for corporate customers as their staff remain working from home. 

Kainos shares jumped by more than 18% in UK trading, leaving them up by around 55% over the last year. Shares for fellow IT provider Computacenter (LSE:CCC), which released its latest trading update on the same day, are up by around 40% over the last 12 months.

Back in November, Kainos, whose services to the NHS include assistance with its Covid-19 home testing and track and trace system, reported a doubling in pre-tax profit to £24 million for the first half-year to the end of September. It raised the interim dividend payment by 83% to 6.4p per share. 

Corporate customers such as EMC Insurance, Warner Music and BlackBerry (NYSE:BB) feature among users for its workday or staff efficiency software. Its smart or specialist workday automated testing platform continues to drive new client acquisitions and supports over 200 international clients, particularly across North America.

Accompanying outlook comments for the Belfast headquartered company flagged a robust pipeline, strong balance sheet and a contracted backlog up 38% to £180.9 million as of the half-year results. All this underpins management’s confidence in the outlook.

Full-year numbers for the financial year to the end of March are scheduled for 24 May. 

ii view:

Established in 1986, Kainos provides both software and consulting services to governments and corporate customers. Its digital services division provides full lifecycle development and support of customised digital services for public sector, healthcare and commercial customers. Its workday practice is one of workday's most respected partners. As a full-service partner, it is experienced in complex deployment and integrations. Its software suites include cloud-based programmes for finance, HR, and planning.

For investors, cautious accompanying management comments regarding the potential impacts of Brexit and the ongoing uncertainty from the pandemic are worth noting. A more than doubling in the share price since late March pandemic induced lows also suggests a pricing in of considerable good news. But exposure to government digitalisation programmes and corporate desire to improve staff efficiency are clearly favourable places to be. In all, while some near-term caution looks sensible given a possible calming of the current Covid tailwind, attractive market sectors and expanding overseas sales appear to support longer term optimism. 

Positives: 

• Diversifying revenue streams
• Pre-pandemic double-digit revenue growth in 2019

Negatives:

• Brexit and Covid outlook caution
• Corporate spending on IT can be unpredictable

The average rating of stock market analysts:

Strong buy