Kainos Group PLC (LSE:KNOS) has had a tough run of late. The shares are down 27% against the FTSE All-Share Index so far this year, and investor sentiment has drifted.
But this morning’s trading update may go some way to changing that.
The IT services and cloud software firm has confirmed that it is on track to meet forecasts for the year to March 2026.
Revenue is expected to come in around £393 million, up 7% year on year, with adjusted pre-tax profit of £66.4 million, also slightly ahead of last year.
That’s not fireworks, but in a sector still weighed down by macroeconomic uncertainty and cautious enterprise spending, it’s a solid showing.
More encouraging is the sense that momentum is starting to return. The company flagged a strong backlog, a healthy pipeline, and long-term drivers, including demand for AI and data services.
Public sector work is picking up again, international growth is helping to offset a still-muted commercial sector, and product innovation continues.
Its Workday Products arm, a key growth engine, has now passed $100 million in annual recurring revenue.
A new compliance tool for pay transparency, developed with Diageo and Linklaters, is set to launch in the third quarter.
In Digital Services, new contracts with the Home Office and NHS England should drive meaningful revenue growth in the second half of the year.
Meanwhile, the Workday Services division, which had been struggling, is starting to stabilise, with improved performance in Europe, North America and newer markets such as Mexico and Australia.
Shore Capital believes the firm is "well positioned in its core markets", helped by long-standing customer relationships, geographic diversification and early exposure to growth areas like low-code development and custom Workday applications.
The conclusion of the Government’s Phase 2 Spending Review in June, which backed new digital projects, has also given the public sector pipeline a timely boost.
Valuation is another piece of the puzzle. Ahead of the numbers, the shares were trading on just 11.5 times forecast earnings before interest, tax, depreciation and amortisation for the current year, down from around 16 times a year ago. A 19% rise on Monday to 840p has upped that multiple.
Shore Capital’s fair value is 1,070p, implying 27% upside, based on a multiple more in line with Kainos’s recent history.