DAVY VIEW

Kainos Group (KNOS) is a software and IT services provider with much to like operationally, a management team taking a genuinely long-term view of value creation, a 15- to 20-year growth runway, as well as consistent revenue growth, profitability and cash generation. The equity enjoyed a COVID bounce and is down 28% year-to-date but still sits above the pre-COVID valuation. At this stage of the cycle, 35x CY23 earnings and 32x CY23 free cash flow isn’t cheap enough. We initiate with a ‘Neutral’ recommendation and a £12.00 price target.