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Kainos Group - helping the NHS to save time

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WalbrockResearch821
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Kainos Group - helping the NHS to save time

#55038

Postby WalbrockResearch821 » May 19th, 2017, 11:43 pm

Kainos Group has been listed on the market for two years at £1.35 per share. Now trading around £2.60 per share. The listing has made 9 millionaires for the owners and senior managers.

Looking towards their next report (end of May), they haven't given much detail away (apart from saying they are trading in-line with expectations), but might have let something in their latest trading update. That is Kainos has recruited 216 new staff since April 2016, which is a 25% increase. From my research, I have evaluated the revenue per staff growing from £81k to £104k in three years. Similarly, profit per staff rose from £10k to £19k.
So, using conservative estimates of £105,000 sales per staff and £20k profit per staff, then my forecast for Kainos Group’s 2017 is:
A. An approximate revenue of £102m from £76.6m;
B. And operating profit close to £20m from £14.2m.
These are impressive estimates and we will see by the end of this month.

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#56031

Postby ADrunkenMarcus » May 25th, 2017, 4:50 pm

Thanks for highlighting, WalbrockResearch821.

I did some recent sums for their return on capital employed and it was over 50% which is, needless to say, impressive. One worth doing further research into.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#56554

Postby ADrunkenMarcus » May 29th, 2017, 10:49 am

FWIW, I decided to initiate a small position in my SIPP.

Some of the numbers I looked at:

RETURN ON CAPITAL                  |  2013 |  2014 |  2015 |  2016
Earnings (unadjusted) | 3753 | 7029 | 11803 | 13535
Total Assets - Current Liabilities | 10017 | 15130 | 24077 | 26249
| 37% | 46% | 49% | 52%


Years omitted, but 2013 to 2019 (the latter three are Digitallook forecasts):

OPERATING MARGIN      |       |       |       |       |       |       |        | CAGR
Revenue | 29933 | 41915 | 60778 | 76594 | 81440 | 89430 | 100300 | 22%
Earnings (unadjusted) | 3753 | 7029 | 11803 | 13535 | 14070 | 14970 | 17300 | 29%
| | | | | | | |
| 13% | 17% | 19% | 18% | 17% | 17% | 17% |


I enjoyed your website's analysis WalbrockResearch821.

Qualitatively, I quite like the trend towards going paperless and the requirements for software systems to do this; the Chief Executive won EY Entrepreneur of the Year Award in 2016; clients include AstraZeneca, Diageo and the NHS; and the annual report focused on long term investing, attracting and retaining quality people. (Annual reports contain a fair bit of waffle but there's a lot to like in this case.)

It will be interesting to see the upcoming results.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#56668

Postby Biggles » May 30th, 2017, 8:26 am

ADrunkenMarcus wrote:It will be interesting to see the upcoming results.

http://www.investegate.co.uk/kainos-gro ... 00104618G/

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#56785

Postby ADrunkenMarcus » May 30th, 2017, 7:07 pm

:D

Good cash generation, a dividend increase and strong ROCE. They're investing a lot in future research and development, which bodes well IMHO.

Best wishes


Mark.

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Re: Kainos Group - helping the NHS to save time

#56978

Postby dealtn » May 31st, 2017, 8:56 pm

So looking at the latest results it looks like revenue is going up, but profits barely changed (not good) and earnings per share actually falling. Yet the share price is on a p/e in the 20s, something I would expect to see from a "growth" stock. I haven't done any serious analysis but that looks like a start point of overpriced to me, so wouldn't be on my radar of investible propositions requiring further analysis. So apart from the "story" of providing IT solutions to the NHS, at a time when they are perhaps embarrassed a little by the recent ransomware episode, what's the bull case for investing?

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#56982

Postby ADrunkenMarcus » May 31st, 2017, 9:15 pm

dealtn wrote:So looking at the latest results it looks like revenue is going up, but profits barely changed (not good) and earnings per share actually falling.


I wouldn't look at one year in isolation. It's been a long day, but my recollection is they expense their R&D expenses and in the last year they increased these substantially as well as recruiting more staff (investing in the business). Unlike some rivals, Kainos accounts for this investment in a conservative way.

That seems to be confirmed by the results presentation where they draw attention to this: they spent an extra £2.3m on R&D compared to the year before (100% increase). If they hadn't done this, it appears adjusted profits would be up more strongly for this year but the picture in the long term wouldn't be as good because businesses should invest to grow. Further, they hired considerably more staff and there'll be a time lag before the reward from those revenues joins the expenditure on hiring and paying those new staff. It can be easy to show 'good' short term results if you don't look to run the company in a forward-looking, sustainable way.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#56990

Postby dealtn » May 31st, 2017, 9:57 pm

Ok, as I say I haven't really looked into it, just a skim. It looks far from a basket case, and generates lots of cash and is debt free, so will tick a lot of boxes for a lot of people. However, even thinking long term, the current price looks expensive, so I would hope to see a better entry point. To be fair looking at the dates on the thread (and forecasts) these were ahead of the released results. It seems surprising (at least to me) that, with the market "rewarding" growth stocks so handsomely at the moment, the disappointment of a decline in eps didn't lead to the price falling more. Maybe it will later, maybe it won't. Anyway not for me at this level, but best wishes to those with it in their portfolios whether for the short, or long term.

WalbrockResearch821
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Re: Kainos Group - helping the NHS to save time

#57183

Postby WalbrockResearch821 » June 1st, 2017, 6:27 pm

You guys should read the preliminarily results for 2016 and 2017, separately. Because there is some misleading data on their head counts. In 2016, the head count was 777 and today’s headcount comes to 975.

So, why did the headcount increase by 135 staff, instead of198 staff?
Well, Kainos was a little sneaky by including contractor employees numbers in this year result but excluding it from last year results. :?:

That messed up my forecast.

BTW, the dividends payment amount has nearly half from last year to £7.2m from £13m (something to do with special payout) which is why the cash balance rose to £23.7m. It means the yield is 2.2%.

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Re: Kainos Group - helping the NHS to save time

#57205

Postby PinkDalek » June 1st, 2017, 7:54 pm

WalbrockResearch821 wrote:You guys should read the preliminarily results for 2016 and 2017, separately. Because there is some misleading data on their head counts. In 2016, the head count was 777 and today’s headcount comes to 975.

So, why did the headcount increase by 135 staff, instead of198 staff?
Well, Kainos was a little sneaky by including contractor employees numbers in this year result but excluding it from last year results. :?:

That messed up my forecast. ...


You need to study the detail.

I've looked at last year's Annual Report, rather than the prelims. and, as you say, the 31 March 2016 figure does show 777 at the year end. However, this number is clearly described as (my bold):

... and the number of employees (excluding contractors) at 31 March 2016 was 777.

https://investor.kainos.com/wp-content/ ... -FINAL.pdf

The 31 March 2017 prelims. http://www.investegate.co.uk/kainos-gro ... 00104618G/ break down the numbers at 31 March 2017. Technical, Administration and Sales total 777 (as before) in the 31 March 2016 comparative, as against 916 as at 31 March 2017. An annual increase of 139. The reported Contractor numbers decrease from 63 to 59. Totals 975 v 840. Your 135.

Out of interest, I don't believe the number of employees at the year end is a statutory disclosure item, though I may be wrong. What has to be disclosed is the average number of employees. You'll note their average number of employees during the year does not mention contractors. That would be correct as the Companies Act 2006 states (again my bold):

http://www.legislation.gov.uk/ukpga/2006/46/part/15

411 Information about employee numbers and costs

(1)The notes to a company’s annual accounts must disclose the average number of persons employed by the company in the financial year. ...

(4)The relevant annual number is determined by ascertaining for each month in the financial year—

(a)for the purposes of subsection (1), the number of persons employed under contracts of service by the company in that month (whether throughout the month or not);


Contractors have thus been correctly excluded from the average numbers although, I'd suggest, they've been incorrectly described as employees in the year end numbers!

WalbrockResearch821
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Re: Kainos Group - helping the NHS to save time

#57306

Postby WalbrockResearch821 » June 2nd, 2017, 12:00 pm

Thanks for the legislation lesson on employee disclosure and I agreed they should put out average employee numbers.

So, for any analysts studying their employee headcount could easily be misled by Kainos. On their trading update (before their preliminary results) here:
http://www.iii.co.uk/research/LSE:KNOS/ ... t=LSE:KNOS

They alluded to us that recruitment is strong and said they added over 216 new employees, which a 30% increase! But when sales growth is in the single digits, then recruitment numbers changes.

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Re: Kainos Group - helping the NHS to save time

#112029

Postby ADrunkenMarcus » January 20th, 2018, 11:13 am

On the basis of 'confirmation bias', I noted the share price is now 370p compared to my purchase price of 245p. I've also received 6.4p in dividends for a total return of 53.6% since the end of May 2017. Forecast earnings growth (Digitallook) comes to 5, 23 and 16% for 2018, 2019 and 2020 respectively. The PE is quite inflated - I'm not sure I'd buy at these levels but happy to hold.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#182949

Postby ADrunkenMarcus » November 26th, 2018, 8:24 am

Kainos' interim results looked promising to me, including the 62% increase in revenue.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#209573

Postby ADrunkenMarcus » March 23rd, 2019, 10:50 am

Kainos hit 558p recently. Quite an increase. Let's hope results justify it.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#225967

Postby ADrunkenMarcus » June 1st, 2019, 12:31 pm

And 634p this week - up 159% for me since May 2017 ex. dividends.

The recent dividend increase was more than I expected. Return on capital looks good and Sharepad shows a 48% cash return on invested capital. Earnings per share are expected to rise to 21.9p by 2022, which compares with 9.6p in 2018 and 13.9p in 2019. For me, a software business has a significant advantage if it's able to scale up successfully: once they have the software developed then increasing the number of users/customers for the same software should go to the bottom line.

If it can keep that up, the future looks bright.

Best wishes

Mark.

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#274675

Postby ADrunkenMarcus » January 2nd, 2020, 7:23 pm

Kainos touched 804p today, making it overvalued (IMHO) on the basis of current earnings. I recently trimmed it, recouping more than my initial book cost so that it's now impossible for me to lose money on this share: the remainder, I intend to run for the long term in my SIPP.

I am delighted to have enjoyed a total return of 238% since May 2017.

Coincidentally, my holding of Temple Bar investment trust has also returned 238%. However, I bought that in December 2001!

Best wishes

Mark.

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#312164

Postby ADrunkenMarcus » May 25th, 2020, 9:46 pm

I wrote that Kainos was overvalued, in January 2020. However, it's now arguably more so and headed towards 900p as at last week's close. (They are going to review their dividend later in the year, however IMHO they had ample cash to pay one and do so comfortably.) It is ironic indeed to look at how poorly Temple Bar has done since I wrote that.

Best wishes

Mark.

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Re: Kainos Group - helping the NHS to save time

#329025

Postby ADrunkenMarcus » July 27th, 2020, 5:36 pm

Kainos did a U turn.

They’re paying a special dividend in lieu of the final.

They’re repaying the government furlough money they took.

And they’re warning profits will be higher than expected.

Up 26% today. Nice.

Best wishes

Mark

ADrunkenMarcus
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Re: Kainos Group - helping the NHS to save time

#329132

Postby ADrunkenMarcus » July 28th, 2020, 9:43 am

Kainos is up 7%.

353% share price gain for me since May 2017.

Nice.

Now for the downfall lol!

Best wishes

Mark

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Re: Kainos Group - helping the NHS to save time

#332601

Postby Regdragon » August 12th, 2020, 10:12 am

Mark,

“I have been happy with a number of announcements recently.”

This opening line in your post today on your “Dividend Growth Portfolio” topic on the Portfolio Management and Review board prompted me to thank WalbrockResearch821 and yourself for the tip and commentary on Kainos. I only found this Kainos thread in May last year so paid £6.10 a share but I’m very pleased with the increase in the share price since then. It’s so impressive that, in their last trading update, and with such economic uncertainty etc, Kainos already knew by the end of July 2020 that their revenue for the year ending 31 March 2021 would be “well ahead” and their adjusted profit “substantially ahead” of then current consensus forecasts. Something must be going very right...

Thank you,

Regards

RD


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