Berenberg lowers target price on Kainos
By Iain Gilbert
Date: Tuesday 16 Apr 2024
(Sharecast News) - Analysts at Berenberg lowered their target price on software company Kainos from 1,315.0p to 1,260.0p on Tuesday following the group's full-year trading update on 15 April.
Kainos warned that annual revenues would be "slightly below consensus" of £400.7m, although adjusted pre-tax profits were seen in line with consensus at £76.3m for a 19.0% margin.
"Reflecting some continuation of these dynamics into FY 2025, we lower our revenue forecasts by 1.7%, 5.0% and 5.0% in FY 2024, FY 2025 and FY 2026, respectively, and reduce our price target from 1,315p to 1,260p, offering circa 24% upside," said Berenberg.
The German bank noted that although Kainos was in "a cyclical slowdown", its view on the company remains "significantly positive", leading it to reiterate its ''buy' rating on the stock.
Berenberg added that a 5.3% free-cashflow yield was "an attractive entry point" for a "high-quality business" with a multi-decade growth runway.
"The company did not provide guidance on the FY 2025 outlook, although noted that its core markets offer substantial growth opportunities, while, in the near term, an increased backlog and a robust pipeline provide excellent visibility of the strength of the company's FY 2025 performance," said Berenberg.
"We retain our view of a recovery to more structural growth levels by FY 2026. In more normalised macroeconomic conditions, we expect digital services to see low double-digit growth, workday services to settle at a rate similar to that of Workday, Inc (circa 17% yoy) and Workday Products to grow by at least 20% yoy. We therefore expect revenue growth of at least 14% yoy over the medium term."
Reporting by Iain Gilbert at Sharecast.com
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