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Kainos shares: up over 22% despite reduced dividend and lower profits


Full year results were released for Kainos Group (LSE:KNOS) Monday, which saw investors piling into the IT services stock on the back of another robust set of metrics for the company. Revenue for 2022 was reported up 29% although profits were down marginally at -9%. Cash reserves also slipped slightly, but it was the revenue growth that investors zeroed in on.

Adjusted pre-tax profits were up 3% to £58m as margins moderated following increased investment and the further normalisation of costs. Bookings were reported up 35% to £349m and there was a growth in contracted backlog of 26%.

A great deal of the revenue growth for Kainos has come out of Digital Services division. It has an extensive project portfolio here and delivers what it calls “digital transformation programmes” to both the public sector and clients in the private space and the healthcare market. Kainos remains the leading pan-European Workday specialist and has reported that it is growing further in North America as well.

A key platform of the company’s growth has been its leveraging of Workday, which is a cloud-based financial management and human resources software platform developed by Workday Inc. This competes in the same space as SAP and Oracle. The Workday technology is designed to help companies to better manage their finances and their important human capital.

As part of its Workday Services business, Kainos provides consulting, project management and post-deployment services.

Consistent growth including during pandemic

This is the 12th consecutive year of growth for Kainos, which has demonstrated consistent long term performance for its shareholders. It has been a direct beneficiary of the emphasis on digitisation which was driven by the pandemic and the realisation by many large organisations that more money needed to be spent on IT in this area. It is changing the way essential services are being delivered – e.g. to patients.

We also like the look of further international diversification for Kainos. It is becoming increasingly global in character. Over two thirds of its customers are now based in Central Europe and North America.

“Looking forward, we remain confident in our business as the demand for our services has never been higher, our reputation for delivery continues to flourish, while the scale and capability of our organisation continues to grow at pace,” CEO Brendan Mooney told investors.

Investors took their eye off the ball with Kainos

Like many other stocks, investors have been selling Kainos shares. The share price dropped from a recent peak of around £2 to trade at £1.033 last week going into this set of results. The numbers were well received, and Kainos stock was trading at £1,269 at time of writing.

Kainos looks very much like it has been oversold by investors who have become a little frightened of the bad headlines coming out of the technology sector, usually from some of the larger names in the sector. Kainos has demonstrated that it continues to grow, even during a global pandemic, and prospects for its  businesses look good, as more and more companies start looking for a digitalisation partner.

We also like the fact that the company works with government clients and in healthcare. which should continue to see consistent spend over the next 24 months.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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