Belfast-headquartered Kainos (KNOS) is today’s biggest riser on the FTSE All Share index after telling the market it expects to beat full year expectations. Investors love this type of surprise announcement (as opposed a negative one) and have rallied behind the company, sending the share price soaring close on 12% to 406p.
Analysts had previously been anticipating £18.8m of pre-tax profit this year to 31 March 2019 on £115m revenue. Investment bank Canaccord Genuity has now rejigged its equivalent figures to £21m pre-tax profit and £132m revenue, an increase of 12% and 15% respectively.
There are similar upgrades to next year’s forecasts too, now pitched at £23.3m pre-tax profit on £148m revenue.
To be confident enough to announce a forecast beat just four months into the financial year is no mean feat, but this is a high quality business that Shares has flagged in the past (originally at 198p in January 2017).
MAKING ORGANISATIONS DIGITAL-READY
Driving this outperformance is digital services and transformation. This is topical as corporates and organisations are desperate to get the most out of operating investment and also ensure they aren’t wasting any money on a day-to-day basis.
Many clients are stretched government departments struggling to keep pace with efficiency demands and budget restraints while still meeting the needs of the population.
These include the Cabinet Office, Home Office, Driver & Vehicle Licencing Agency (DVLA), Department for Transport and NHS, for example.
Alas, the NHS remains the fly in the ointment, where hospitals are simply too cash-strapped at present to investment in new systems, even when the longer-run pay-off is evident. It certainly gives investors something to chew over.
According to analysis by technology consultancy Megabuyte, the company is now trading on 20.7-times 2019 EV/EBITDA valuation, or enterprise value versus earnings before interest, tax, depreciation and amortisation in plain English.
This is ‘significantly ahead of the 15.3-times average for the Megabuyte Consulting & Systems Integration peer group,’ points out Megabuyte’s John McCaul. This may imply that valuation is another point to ponder for investors.
