(Sharecast News) - FTSE 250 (MCX) 21,001.82 -0.40%
IT provider Kainos said it expected full-year revenues to be below market forecasts due to the tougher trading environment in services as clients delayed decisions on projects, but adjusted pre-tax profit would be in line with consensus estimates.
The consensus revenue and profit figures are £415.5m and £79.1m respectively. Full-year 2024 reported revenue was £382.4m.
Kainos on Monday said digital services had seen sustained demand from public sector clients "offset by some delays around project mobilisation as result of the short-term impact of the UK General Election", while healthcare revenues continued to grow, but "weakness in demand within our commercial clients continues as project related expenditure decision making is delayed".
"Overall, there has been a subdued start to the year but expect to see revenue growth over the remainder of this year."
The group said while its "win rate" within its Workday Services division "remained robust", contract wins have been lower than in previous periods along with "more aggressive pricing amongst partners".
"Cumulatively, this has impacted our divisional performance in the short-term although we expect a return to growth in the second half of the year," it added, citing a more upbeat outlook on the back of an enhanced strategic partnership it announced in July with Workday to co-sell products.
Kainos said its annual recurring revenue (ARR) target for the division had doubled to £200m as a result.
Broker Shore Capital said it was expecting to leave unchanged full-year forecasts of 3% growth in adjusted pre-tax profit to £79.7m.
"We note that Kainos looks forward 'with confidence to the remainder of the year, supported by a healthy pipeline, a strong balance sheet and significant contracted backlog'. We believe Kainos remains well positioned in its core markets, and that these offer substantial growth opportunities over the medium term," ShoreCap said in a note to clients.
"Kainos benefits from long-term customer relationships, international expansion and diversified revenues across customers, end markets and geographic regions. The company remains exceptionally resilient and well-managed, in our view, as evidenced by an adjusted diluted earnings per share compound annual growth rate of 25% between full-year 2019 and 2024."
Bodycote was higher after Berenberg initiated coverage on the stock at 'buy'.
"Bodycote's financial framework is targeting 20% operating margins in the medium term, with low-investment requirements and self-help opportunities, gearing towards industrial cyclical recovery and strong cash generation, which we believe is undervalued at current levels compared to the industrial engineering sector," the bank said.
It said Bodycote is an early-cycle operationally-geared industrial recovery play.
"While industrial indicators are weak and visibility is low, along with other factors we note here, the exposure to a recovery is very high compared to our broader industrials coverage," Berenberg said.
"Furthermore, on a 12-month view, with comps easing and the likelihood of industrial markets stabilising, we believe that there is the potential for earnings to accelerate, although we also note that our EPS forecasts for 2025 are slightly ahead of consensus forecasts."
In addition, it said Bodycote has one of the highest exposures in the bank's coverage to attractive aerospace and defence markets, which should underpin group growth in the medium term.
Berenberg noted that Bodycote has historically maintained a strong balance sheet, with low investment requirements and resulting strong cash generation.
"This provides scope for further M&A and improved returns to shareholders, in addition to the current £60m share buyback," it said.
Berenberg also pointed to an attractive valuation, with Bodycote trading on 12.7x FY 2024E price-to-earnings and 10.1x FY 2024 EV/EBIT.
"These are substantial discounts to Bodycote's own historical levels as well as the sector relative history of 15% and 16% on a P/E basis respectively," it said.
"The stock has rarely traded this low in comparison to its sector, thus suggesting to us that the stock is pricing-in a lot of cyclical headwinds and not much credit for self-help initiatives."
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