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magazineSmarten up your portfolio with Kainos
Belfast-headquartered Kainos (KNOS) is a digital technology solutions supplier that helps organisations to work smarter, faster and more efficiently.
This is topical as corporates and organisations are desperate to get the most out of any investment and also ensure they aren’t wasting any money on a day-to-day basis.
Kainos’ share price was quick to recover from a sudden drop last summer around the Brexit vote as investors recognised the company’s potential to thrive long term.
A pull back from this rally presents an opportunity to buy a quality company.
Market concerns
The shares have recently been knocked for two reasons. Firstly, there is near-term gloom about NHS investment. Healthcare is a key market for Kainos.
Secondly, plans to accelerate its software-as-a-service (SaaS) model could curb revenue growth in the near-term, even though it should improve earnings quality longer term.
‘We think Kainos is a rare breed of IT services company that exhibits the attributes required to achieve sustainable double-digit growth over the mid to long term,’ says investment bank Canaccord Genuity. It believes Kainos’ shares will rise by nearly 30% by the end of 2017.
Kainos to the rescue
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.
Kainos is capable of providing the insight, advice and implementation on a swathe of digitalisation projects to solve these problems.
For example, Kainos has developed its Evolve digital healthcare solution that digitises the mountain of patient records, consent forms, prescriptions and examination results. This product is sold to both NHS and privately-run hospitals.
Kainos estimates up to 3% of a hospital’s budget is wasted as a result of an extensive paper trail.
Supporting growth is an expanding division that resells the human resources packages of US company Workday (WDAY:NYSE). Kainos has also developed its own Workday automated testing tool kit.
Canaccord forecasts pre-tax profit will dip slightly in the financial year ending March 2017 to £13.9m, before recovering to £14.8 in 2018 and racing ahead to £19m a year later.
Kainos (KNOS) 198p
Stop loss: 158p
Market value: £234m
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