Kainos Group — Green shoots of growth

Kainos Group (KNOS)

Last close As at 16/06/2025

GBP7.50

−8.50 (−1.12%)

Market capitalisation

GBP927m

More on this equity

Research: TMT

Kainos Group — Green shoots of growth

After a tough year, Kainos is seeing signs of improving demand, with Q425 revenue returning to growth. Workday Products continues to be the main growth driver and in Digital Services, the company should get some clarity on UK public sector spending with the publication of the Comprehensive Spending Review in mid-June. The cost base has recently been restructured to support the most promising parts of the business, with consensus estimates assuming modest growth in revenue and earnings in FY26 accelerating to double-digit growth in FY27.

Katherine Thompson

Written by

Katherine Thompson

Director

Software and comp services

QuickView

27 May 2025

Price 723.00p
Market cap £888m
Price Performance
Share details
Code KNOS
Listing LSE

Shares in issue

122.8m

Net cash/(debt) at end FY25

£133.7m

Business description

Kainos Group is a UK-headquartered provider of sophisticated IT services to major public sector, commercial and healthcare customers.

Bull points

  • Fast-growing Workday Products business.
  • Well-established technology provider to the UK public sector.
  • Strong track record of profit and cash generation.

Bear points

  • Workday services market becoming more competitive.
  • Abolition of NHS England likely to pressure the Digital Services healthcare business.
  • Weak demand from commercial sector in Digital Services.

Analyst

Katherine Thompson
+44 (0)20 3077 5700

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Tough market conditions in FY25

In FY25, Kainos reported a 4% decline in revenue, its first ever since listing in 2015, resulting in an 18% decline in adjusted EPS to 38.3p. This compares to a track record over FY15–24 of a revenue CAGR of 22.7% and an adjusted EPS CAGR of 20.8%. Last year’s general election in the UK, ongoing economic uncertainty and increased competition from the growing number of Workday partners all contributed to weaker demand. The pace of revenue decline moderated from 5.2% y-o-y in H125 to 2.6% in H225, with management noting that Q425 revenue for Digital Services was 8% higher than Q325.

Mixed outlook for FY26, but overall positive

In Digital Services, the publication of the Comprehensive Spending Review on 11 June should provide clarity on the size of public sector budgets and prompt departments to resume procurement for digitisation projects. The abolition of NHS England is likely to reduce healthcare demand in the short term while the reorganisation is underway but, in the longer term, we would expect digitisation to play a significant role in the sector. Demand in the commercial sector remains weak, calling into question the strategic rationale for operating in this market. Workday Products is still the shining star, with four products in the market and a fifth on the way, and potential for the Built on Workday partnership to accelerate growth. In Workday Services, the company is adapting to the tougher competitive environment and focusing on regional expansion.

Forecasts and valuation: Factoring in return to growth

The stock was down 7% on the day of results, although consensus forecasts are broadly unchanged, factoring in 5.3% revenue growth and 6.7% EPS growth in FY26, before accelerating to 10.0% and 16.0%, respectively, in FY27. The second £30m share buyback programme should provide ongoing support to the share price.

Source: LSEG Data & Analytics. Note: PBT and EPS are adjusted to exclude amortisation of acquired intangibles, exceptional items and share-based payments.

Consensus estimates

Year end Revenue (£m) PBT (£m) EPS (p) DPS (p) P/E (x) Yield (%)
3/24 382.4 77.2 46.50 27.30 15.5 3.8
3/25 367.2 65.6 38.30 28.40 18.9 3.9
3/26e 386.7 67.8 40.87 27.73 17.7 3.8
3/27e 425.3 79.8 47.41 31.33 15.2 4.3
The author of this report holds shares in Kainos Group and, as such, has a financial interest in the subject of this analysis.

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