Superstar stock Kainos keeps rising

The small-cap success story Kainos (KNOS) has continued to impress after shares in the Belfast-based IT company climbed to a record high today on the back of an eighth consecutive year of revenues and profits growth.

Kainos, which was set up in 1986 as a joint venture between ICL (now Fujitsu) and Queen’s University of Belfast, provides digital services to Whitehall departments as well as to a range of commercial customers.

It joined the stockmarket in July 2015 when its shares were priced at 139p. Apart from a blip the following summer, they’ve been on an upward path ever since as Kainos continues to win projects with new and existing customers.

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In today’s results for the year to March 31, revenues rose 16% to £96.7 million and adjusted profits lifted 7% to £15.3 million. Earnings per share were up 9% to 10.4p.

The company’s Digital Services division continues to benefit from projects that boost Government efficiency by migrating paper-based systems and transactions to online platforms capable of handling high volumes of data.

Kainos operates across a range of Government departments including the Land Registry, Home Office and the Driver and Vehicle Standards Agency.

And even though Brexit has introduced a degree of uncertainty in the UK economy, Kainos said there has been no negative impact to Government programmes with which it is involved.

Source: interactive investor         Past performance is not a guide to future performance

Kainos is also the leading European partner for Workday, with responsibility for implementing its cloud-based Software-as-a-Service platform for enterprise and, now, government customers.

And its Digital Platforms division continues to make progress against key milestones, even though NHS funding challenges have put some pressure on its Evolve electronic medical records business.

Investec Securities said today’s results showed “good traction” across the board, prompting the broker to upgrade its 2019 and 2020 sales forecasts by 7% and 9% respectively.

It left profit forecasts unchanged, however, due to the potential for wage inflation from tighter labour markets and the cost of expansion in Workday International.

They said: “We expect another strong year ahead and retain our ‘buy’ recommendation.”

With a price target of 420p, Investec sees Kainos trading on a 2019 price earnings multiple of 31.2x, with a dividend yield of 1.8%. This year’s pay-out will be 6.6p, up from 6.3p in 2017 and representing a distribution of 61% of adjusted profit after taxation for the year.

Kainos ended the period with cash of £29 million, representing a 22% rise on a year earlier.

The company boasts a proud record of customer and workplace satisfaction, having grown staff and contractor numbers by 194 to 1,169 in the past year.

It has appeared in the Sunday Times Best Companies to Work For top 100 list for the past six years, while 99% of customers rate its service as ‘Good’ or better.

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