Sparks

In its October 2024 trading update, Kainos reduced guidance for FY25 (y/e 31 March) due to weaker demand for both Digital Services and Workday Services. In today’s year-end trading update, the company notes that business improved in Q425 with group revenue up a low single-digit percentage year-on-year. Demand for Digital Services returned to growth in H225, although demand from the commercial sector remains weak, well below prior year levels. Delays in decision making due to the change in government in the latter half of 2024 reduced demand from the public sector in H125 but performance is now back to more normal levels. Workday Products, which has been the bright spot for the company over the last year, is on track to meet the company’s ARR target of £100m by 2026, hitting ARR of £72m by the end of FY25 (+19% y-o-y). Demand for Workday Services has remained subdued although there are encouraging signs of recovery and increasing activity across the international customer base. The board therefore expects to meet consensus revenue and adjusted PBT for FY25 (£365.6m (-4.4% y-o-y) and £65.4m (-15.3% y-o-y) respectively).

Long-time CEO Brendan Mooney re-took the reins in December 2024, after previous CEO Russell Sloan stepped down. Since then, he has overseen a restructuring that includes the departure of 190 employees. The company has a strong balance sheet (net cash of £151.6m at the end of H125) and has been buying back shares since November (£30m programme).  Consensus forecasts call for revenue growth of 5.7% in FY26 and 9.9% in FY27 and EPS growth of 5.2% and 16.0% respectively, putting the company on a P/E of 15.7x FY26e and 13.5x FY27e.