ii view: orders growing but higher costs affect Kainos profit

First-half results 30 September

• Revenue up 7% to £196 million
• Adjusted pre-tax profit down 16% to £32 million
• Interim dividend up 5% to 9.8p per share
• New £30 million share buyback
• Cash held down 30% to £105.5 million

Guidance:

• Continues to expect full-year adjusted pre-tax profits to match current City forecasts

Chief executive Brendan Mooney said:

"This was a positive six months for Kainos, underpinned by our success in securing several new contracts with new and existing customers. This positions us for accelerated growth in the second half, with each of our divisions set to increase revenue. We therefore anticipate a strong performance for Kainos as a whole.”

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 ii round-up:

Kainos Group (LSE:KNOS) today detailed a growing backlog of contracted work, with the provider of IT services to organisations such as Diageo (LSE:DGE) and NHS England also announcing a new £30 million share buyback programme.

Revenues for the first half to 30 September climbed 7% to £196 million. Dampened by increased investment costs, adjusted pre-tax profits fell 16% to £32 million. Ongoing demand from both companies and governments to increase efficiency pushed the Kaino’s contracted backlog of work up 12% year-over-year to £397 million.

Shares in the FTSE 250 company swung between small losses and gains in UK trading having come into these latest results up around 14% so far in 2025. The FTSE 250 index is up 6% year-to-date. IT equipment seller Computacenter (LSE:CCC) is up by close to a third during that time. 

Kainos sells efficiency improvement products and services on behalf of US company Workday as well as providing its own digital services such as digitalising written records for healthcare and public bodies like the NHS and UK Home Office.

A rise in Workday related customers to more than 600 from over 500 a year ago underwrote strong sales and a one-quarter increase in customer bookings for the half year to £228 million.

Kainos continues to expect full-year adjusted profits to be in line with current City forecasts. Profits on that basis during its last financial year fell 15% to £65.6 million.   

Group cash held of £105.5 million as of late September fell from £151 million the same time last year. An interim dividend up 5% from a year ago to 9.8p per share is payable to eligible shareholders on 12 December. 

ii view:

Started in 1986 and headquartered in Belfast, Kainos today works with over 1,000 private and government run organisations both in the UK and overseas. Digital Services helping customers to solve their business problems generated most profits during its last financial year at 41%. That was followed by Workday products at 30% and Workday services involving the deployment of Workday products the balance of 29%. Geographically, the UK & Ireland generated most sales at 59%, the Americas 31%, Central Europe 9% and the rest of the world 1%. 

For investors, IT spending by companies and governments can prove volatile, with the addition of US trade tariff costs potentially offering increased caution. Kainos' partnership with US company Workday is of high importance. Government pressure to cut borrowing both here in the UK and overseas, could dampen demand for digital services, while currency movements can be a headwind. 

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More favourably, Kainos' own ability to improve other organisation’s efficiency within the tough economic environment likely remains important. A diversity of underlying customer types and geographical regions exists with a push to expand overseas sales ongoing. Sales related to improving its customers' own AI abilities rose 6% to £15 million, while a new share buyback and a forecast dividend yield of around 3% indicates a focus on shareholder returns. 

On balance, and despite ongoing risks, a consensus analyst fair value estimate above £10.50 per share appears to suggest continued longer-term optimism in the City.  

Positives: 

• Business and customer diversity
• Looking to grow sales overseas

Negatives:

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

The average rating of stock market analysts:

Buy