Digital transformation expert remains a great business in a very healthy technology space
Thursday 30 Jul 2020 Author: Steven Frazer

Kainos (KNOS) £10.75

Gain to date: 49.7%
Original entry point: Buy at 718p, 19 December 2019

Digital transition company Kainos (KNOS) had struck a tone of cautious optimism through lockdown, but its latest trading blew the cautiousness out of the water and set the share price alight.

‘We expect revenue to be well ahead and adjusted profit to be substantially ahead of current consensus forecasts for the full year ending 31 March 2021,’ the company told investors.

Analysts at Stifel increased revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) forecasts by more than 10% and nearly 60% respectively, to £188.95 million and £34.9 million.

Net cash of over £62 million and no debt meant Kainos was also able to declare a special dividend of 6.7p per share.

Popping 25% on the day (27 July), it means the share price is now nearly 50% higher on our original buy price of 718p.

It is a little too simplistic to see Kainos as a digital transformation beneficiary through lockdown, although its public sector/government space has proved hugely resilient.

Investors have wised up to the opportunity that lies ahead for the Belfast-based business even if spells of weaker client spending materialise.

SHARES SAYS: Significant upside from here may be asking too much from a price-to-earnings multiple of 47.4, but as a longer-run investment, Kainos continues to look attractive. Stick with the shares.

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