Canaccord Genuity downgrades Kainos to 'hold'

Analysts at Canaccord Genuity lowered their target price on software firm Kainos from 1,525.0p to 1,270.0p on Thursday and downgraded the stock from 'buy' to 'hold', stating "slimmer public sector pickings" made future beats less likely.

Canaccord Genuity said Wednesday's 8% sell-off on the back of an "in-line" FY23 trading update highlighted "the main dilemma" for investors.

It said the roughly 20% organic growth delivered last year was "impressive" and that its forecasts now assume that Kainos can at least maintain an approximately 11% compound annual growth rate in 2024 and 2025.

"However, the still rich valuation premium relative to listed peers in our view bakes in expectations of continued future upgrades to consensus growth and earnings per share, which in our view will become increasingly difficult to achieve," said the Canadian bank.

"Putting it all together, we have a high-quality IT services business delivering resilient low-teens % sales and EPS growth in a slow macro environment. This is a good place to be, but with growth and EPS upgrades in our view less likely over the next 12 months, the shares' rich valuation relative to global and UK peers makes us move to the sidelines."

Reporting by Iain Gilbert at Sharecast.com