How Kainos Group managed to enhance its trading performance despite Covid-19 pandemic?

Summary

• Kainos Group Plc had reported a surge of 23% year-on-year in its revenue to £107.2 million during H1 FY21.
• The Company had almost doubled its Profit Before Tax during H1 FY21.
• The Company had delivered growth of 38% in the contracted backlog to £180.9 million during H1 FY21.
• The Group had a net cash balance of £62.50 million as of 30 September 2020.

Kainos Group Plc (LON: KNOS) is the FTSE 250 listed technology stock. The Company is the leading IT services provider based in the UK. KNOS’s shares have generated a return of about 46.85% in the last 12 months.

The FY21 results of the Company will be released on 24 May 2021.

Business Model

The Company is engaged in delivering IT solutions from the last 30 years and currently employs around 1,300 people around Europe and the US. The Company is headquartered in Belfast. The Company operates across two business areas –

Digital Services – Under this segment, the Company is focused towards rendering customized digital services like experience design, artificial intelligence and cloud computing to key public sector clients and clients from the Healthcare industry & commercial sector.

Workday Practice – The Company had consolidated its position as a leading workday partner in Europe. It encapsulated two broad levels of activities – Workday Services & Smart Automated Testing.

Some of the most prominent partners of the Company are shown below -

(Source: Company website)

The public sector clients had made a contribution of 46% in total revenue, 37% was contributed by the commercial sector, and the remaining came from the healthcare industry during H1 FY21 ended on 30 September 2020. The Company had generated 26% of the total revenue from the customers outside the UK during H1 FY21.

Trading Update (since 16 November 2020, as on 22 January 2021)

• The Company had delivered robust trading performance and anticipated financial results to be ahead of the expectations.
• The Company had recognized the contribution of commitment shown by the people towards enhancing business performance.

Recent News

On 21 December 2020, the Company had appointed Rosaleen Blair CBE as a Non-Executive Director of the Group with effect from 01 January 2021.

H1 FY21 Financial Highlights (for 26 weeks period ended 30 September 2020, as on 16 November 2020)

(Source: Company result)

• The Company’s revenue grew by 23% to £107.2 million during H1 FY21 ended on 30 September 2020 due to digital transformation initiatives taken by several clients during Covid-19 period.
• The Company had almost doubled its profitability and reported profit before tax of £24.0 million during H1 FY21.
• The adjusted diluted earnings per share were 17.0 pence for the period while it was 8.4 pence for the prior year’s comparative period.
• The Group had declared 83% rise in the interim dividend to 6.4 pence per share which was paid on 18 December 2020. The Group had also considered a special dividend of £8.2 million on 04 September 2020. Each shareholder had received 6.7 pence of special dividend approved by the board.
• The cash conversion ratio stood at 123% for the period, while it was 60% during an equivalent period of the prior year.
• The Company had a strong financial position reflected by a net cash balance of £62.50 million as of 30 September 2020.

Operational review (as of 16 November 2020)

• The Company had increased the headcounts by 11% to 1,729 during H1 FY21 despite Covid-19 pandemic.
• Regarding customer satisfaction levels, the Customer approval rating had been rated as “good” or “better” by 97% customers during the period. The Company had 481 active customers as of 30 September 2020.
• The revenue growth was driven by an increase of 4% in bookings from £99.5 million during H1 FY20 to £103.6 million during H1 FY21 and a growth of 38% in the contracted backlog to £180.9 million during H1 FY21.

Sectoral review (as of 16 November 2020)

Digital Services – The revenue across digital services increased by 16% to  £71.4 million during the period. The bookings and backlog were also surged by 10% and 49%, respectively during the period. The public sector and healthcare sector had witnessed an increase, whereas the commercial sector had shown a decline in revenue during the period.

Workday Practice – The revenue for this segment grew by 41% to £23.9 million during the period. The bookings went down by 5% due to slower decision making during the initial phase of Covid-19 pandemic. The “Smart Automated Testing” had shown a revenue growth of 40% during the period. 

Share Price Performance Analysis of Kainos Group Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Kainos Group Plc were trading at GBX 1,246.00 and were down by close to 1.11% against the previous closing price as on 27 January 2021, (before the market close at 12:10 PM GMT). KNOS's 52-week Low and High were GBX 453.84 and GBX 1,392.00, respectively. Kainos Group Plc had a market capitalization of around £1.55 billion.

Business Outlook

The Company had shown strong confidence in its strategic division and is well-positioned to capitalize on the growth trajectory. The Company remained mindful regarding the various challenges presented by chaotic macroeconomic conditions, BREXIT and Covid-19 pandemic. The Company had a bright outlook reflected by strong pipeline, robust balance sheet and significant contracted backlog. The Company had plans to support 200 international clients through its specialist Workday automated testing platform, Smart. The Company would continue to work upon the UK Government's digital transformation programme towards the advancement of its digital segment.