Berenberg lifts Kainos to ‘buy’ after ‘strong’ results

Berenberg upgraded software firm Kainos on Wednesday to ‘buy’ from ‘hold’ and hiked the price target to 1,700p from 1,200p following the company’s "strong" first-half results.

The bank said growth exceeded its expectations. "While margins were lower, this was not for the reasons that we had feared," it said.

"In fact, the underlying profitability of the business was masked by an exceptionally large investment in the company’s software products (a good thing) and by fewer billable days caused by bank holidays (a one-off).

"With management commenting that many customers are ‘accelerating’ their digital investment agendas, it appears there will be no slowdown in the near term."

Berenberg said that as the true profitability of this business swings through in the second half, there is scope for upside.

"While circa 30x 2024 price-to-earnings looks expensive, we are now far more confident in upside scenarios playing out. This would reduce the multiple to beneath 20x."

At 1100 GMT, the shares were up 6.7% at 1,537.64p.