ii view: UK tech firm Kainos surges on bullish forecast

First-half trading update to 29 August

ii round-up:

Kainos Group (LSE:KNOS) today raised forecasts for annual sales as the IT services provider helped organisations such as Diageo (LSE:DGE) and NHS England upgrade facilities. 

The Belfast company highlighted increased customer demand during the first half, with full-year revenue now expected to be at the upper end of its previous estimate of between £378 million and £393.4 million. 

Shares in the FTSE 250 company rose 20% in UK trading having come into this latest news down by just over a tenth so far in 2025. The FTSE 250 index is up 5% year-to-date. Fellow IT services provider Computacenter (LSE:CCC) is up by almost a tenth during that time. 

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Kainos sells efficiency improvement products and services on behalf of US company Workday Inc Class A (NASDAQ:WDAY) 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.

Growth in demand for Workday products remained strong during the period, with annual recurring revenues passing the $100 million milestone during July. 

The Digital Services business secured several significant programmes for NHS England, the Home Office and the Driver and Vehicle Standards Agency. Muted UK commercial demand was offset by strong North American demand. 

A strong sales performance for Workday Services is expected to result in a return to annual growth for the division, fuelled by growth for its core European and North American markets as well as progress in Australia, New Zealand and Mexico.

New business across all three areas is resulting in the recruitment of new staff. Management prudence, however, leaves the full-year adjusted profit forecast unchanged at between £65.1 million and £74.7 million. That’s potentially up from last year’s £66 million.

First-half results to 30 September are scheduled for 10 November. 

ii view:

Founded in 1986, Kainos today works with over 1,000 private and government run organisations both in the UK and overseas. Digital Services helping customers 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, commercial organisations now battling US trade tariffs may prove more cautious about IT spending. Government pressure to cut borrowing, both here in the UK and overseas, could dampen demand for digital services. Kainos' partnership with US company Workday is of high importance, while currency movements can offer headwinds. 

• Shares for the future: why this company is still a top two stock
• Stock pickers strike back as value investing returns
• The Week Ahead: Ashtead, M&G, Curry

To the upside, Kainos' ability to improve other organisation’s efficiency within the tough economic environment remains important. A diversity of underlying customer types and geographical regions exists, with a push to expand overseas sales ongoing. Investment in its own AI offering is been made, while net cash held of £133 million as of late March suggests a robust balance sheet.

In all, and despite ongoing risks, a consensus analyst fair value estimate above £10 per share offers grounds for longer-term optimism.  

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