18th Nov 2022 14:22
(Alliance News) - Kainos Group PLC shares have rallied by two thirds since their summer nadir, but Shore Capital believes the technology stock has room to rise further.
The Belfast-based company provides digital services to the public sector, healthcare market and commercial customers.
Shares in Kainos were trading at 1,572.00 pence in London on Friday afternoon. They are down about 15% over the past 12 months, but up 65% from their 52-week low of 954.50p in mid-June. The FTSE 250 stock has a GBP1.95 billion market capitalisation.
In a note issued on Friday, Shore set its near-term fair value price at 1,900p on the way to a 'base case' value of 2,100p. It kept its 'buy' rating on Kainos.
"The group's fundamentals remain strong, in our view, and despite the greater than 50% bounce since June 2022 lows, we continue to view Kainos very positively from an investment perspective," said analyst Martin O'Sullivan.
Earlier this week, Kainos reported an increase in both profit and revenue as it continued to benefit from digitisation shift in the commercial and public sectors.
In the six months that ended September 30, pretax profit increased 11% to GBP27.5 million from GBP24.8 million in the same period last year, as revenue rose 26% to GBP179.8 million from GBP142.3 million.
Commercial revenue leapt by 46% to GBP86.3 million from GBP59.3 million, representing 48% of total revenue, while Public Sector revenue grew 21% to GBP63.3 million from GBP52.3 million, Kainos said on Monday.
In the UK, commercial sector expenditure on IT is over three times that of the public sector, Kainos noted. While this represents significant opportunity, its focus has initially been on financial services customers.
Healthcare revenue slipped 1.3% to GBP30.2 million from GBP30.6 million last year.
Kainos declared an interim dividend of 7.8 pence per share for the first half of 2023, up from 7.1p per share in the same period last year.
Looking forward, Kainos said "demand for our services has never been higher". It anticipates that demand will remain high, as "the shift to digitisation has been well-established for many years". It noted the Covid-19 pandemic "further accelerated" the shift.
Chief Executive Officer Brendan Mooney said: "Our business is becoming increasingly resilient. We work with over 750 organisations, many of whom are international in scale and who operate across a range of industries including healthcare, public sector, banking, insurance, pharmaceuticals and education. From our UK base we have expanded globally, with over one-third of our revenues now generated internationally."
Following Monday's results, Shore raised its estimates for financial 2023 and 2024 by about 9% for revenue and by 2% to 3% for adjusted pretax profit and earnings per share. The broker noted that it is toward the top-end of market consensus estimates and thinks there is scope for an upgrade to consensus.
For all of financial 2023, Shore expects Kainos to achieve GBP67.2 million in adjusted pretax profit on GBP372.7 million in revenue, rising to GBP78.1 million and GBP426.7 million in financial 2024. In financial 2022, these figures were GBP58.8 million and GBP302.6 million.
By Tom Waite; [email protected]
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