ii view: superstar IT firm Kainos hikes sales forecast

Helping the NHS to digitalise medical records, we assess prospects for this Belfast-based tech company. 

First-half trading update to 31 August 

ii round-up:

Digital services and workday practice information technology company Kainos Group (LSE:KNOS) today raised its full-year sales expectations as customers continued to invest in their IT solutions.

The group’s digital services business helps customers such as the NHS digitalise written records while its workday practices business helps improve staff productivity. 

Kainos shares rose by more than 2% in early UK trading, leaving them up over 220% since pandemic market lows  in March 2020. Shares for fellow IT provider Computacenter (LSE:CCC) are up by more than 170% during that time, while cyber security company NCC Group (LSE:NCC) has more than doubled. 

Growth in Digital Services remained strong at Kainos as demand across the UK public, commercial and healthcare sectors proved robust. Early progress in expanding its services overseas in Europe and North America has also been made. 

At its workday practices business, significant new consulting contracts both nationally and internationally have been secured. Its workday automated testing platform, Smart Test, is winning clients and helping to drive growth. 

Kainos also announced the acquisition of Argentina-based workday consultancy UNE for an undisclosed sum. The purchase is Kainos' fifth workday related buy. 

Overall staff numbers at Kainos have risen by nearly a fifth since late March, given robust customer demand, to just over 2,400 personnel. Management summarised the outlook as "confident".

First-half results are scheduled for 15 November.     

ii view:

Established in 1986, Kainos provides both software and consulting services to governments and corporate customers. Its sales are split roughly 45% to the public sector, 35% to commercial customers and 20% within healthcare.

The 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. Digital services generated nearly 70% of sales in its last full financial year, and workday practices the balance. 

For investors, cautious management comments highlighting the ongoing economic disruption caused by Covid-19 are worth noting. An estimated price/earnings (PE) ratio comfortably above the three-year average also suggests the shares are not obviously cheap. 

But exposure to government digitalisation programmes and corporate desire to improve staff efficiency are strong places to be. In all, and while some caution looks sensible given a possible easing of the Covid tailwind, trading momentum clearly remains in the company’s favour. 

Positives: 

• Business and customer diversity
• Growing sales overseas

Negatives:

• Some Covid outlook caution expressed
• Corporate spending on IT can be unpredictable

The average rating of stock market analysts:

Buy