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Broker tips: Kainos, Wise

By Iain Gilbert

Date: Tuesday 21 May 2024

Broker tips: Kainos, Wise

(Sharecast News) - Analysts at Berenberg hiked their target price on software firm Kainos from 1,260.0p to 1,415.0p on Tuesday, citing "resilient profits" and a "positive outlook".
Kainos released its full-year results on Monday, which Berenberg said demonstrated its "bottom-line resilience", despite revenue coming in slightly below consensus.

Berenberg stated that although cyclical challenges in Kainos' services divisions will constrain growth in FY25, its Workday Products offering was performing "strongly" and that the medium- to long-term outlook for the business remains "overtly strong".

"While Kainos does not provide explicit guidance, CEO Russell Sloan noted that Kainos is positioned for 'substantial growth opportunities in both the near and medium term'. We think that challenges remain, with revenues from the Digital Services division's commercial sector expected to see 'modest reductions' in FY25. However, revenue from the healthcare sector, which declined 11% in FY24, is expected to return to growth. Meanwhile, revenues from the public sector and both Workday divisions (c80% of group revenues in total) are expected to see further growth in FY25," said Berenberg.

"Despite cyclical challenges in its services divisions and the short-term disruption of an impending UK general election, Kainos's long-term prospects remain undiminished and overtly positive, in our view."

The German bank added that Kainos trades on 23.9x full-year earnings per share and 23.3x enterprise value/free cash flow.

Barclays upgraded Wise on Tuesday to 'overweight' from 'equalweight' and lifted its price target on the stock to 1,000.0p from 800.0p.

"Wise's diversification offers sufficient levers to continue growth more than 20% mid-term at a circa 25% margin, even excluding excess NII," the bank said.

"Coupling underlying momentum with a short-term NII tailwind, we are 8/9% ahead of FY25/26 consensus earnings per share and see the de-rating as an opportunity to buy a high-quality compounder at a compelling valuation."


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