Financials
Financials — What the Numbers Say
Figures converted from GBP at historical FX rates — see data/company.json.fx_rates for the rate table. Ratios, margins, and multiples are unitless and unchanged.
Financials in One Page
Kainos is a small-mid cap UK IT services group with three divisions (Digital Services, Workday Services, Workday Products), $475M of FY2025 revenue and an FY2025 cycle-trough operating margin of 11.6%. The decade-long shape is unusual for an IT services peer: gross margin near 48%, ROIC north of 50% in the FY2022-FY2024 window, FCF that exceeds reported net income most years, and a balance sheet carrying $166M of net cash with effectively zero financial debt. FY2025 broke the trend — revenue fell 4%, operating profit fell 30%, and ROIC compressed to 39% (still elite, but cycle-driven). H1 FY2026 (Apr-Sep 2025) returned to growth, with revenue up 7% and operating profit roughly back to FY2024 trajectory. The shares re-rated from a peak P/E above 40x to ~17x forward, the dividend yield is 3.5%, and management opened a $40M buyback in November 2025 — a clear capital-allocation pivot. The single financial metric that matters most right now is operating margin recovery in FY2026: at the FY2024 level the equity is cheap on cash flow; at the FY2025 H2 trough level the multiple is still rich.
FY2025 Revenue ($M)
FY2025 Op Margin (%)
FY2025 Free Cash Flow ($M)
Net Debt ($M)
Return on Invested Capital (%)
FCF Margin (%)
Forward P/E (x)
Dividend Yield (%)
Reader's note on terms. Operating margin = operating profit divided by revenue (the % of every dollar of revenue that survives operating costs). Free cash flow (FCF) = operating cash minus capex (the cash left for shareholders, debt and acquisitions). ROIC (return on invested capital) measures profit generated for every dollar of capital tied up in the business — in services businesses this is usually high because there is little physical capital to fund.
The signal. Revenue and margin both compressed in FY2025; cash conversion stayed excellent; the market re-rated the stock from premium-growth to high-quality-cyclical; management pivoted from "all dividends" to "dividends plus buyback" in November 2025. The investment debate is whether the operating margin trough was H2 FY2025 or whether 11-12% is the new normal.
Revenue, Margins, and Earnings Power
Kainos is a project-and-managed-services business: revenue equals headcount × utilisation × bill rate, plus high-margin Workday Products software subscriptions. The group grew at a 24% CAGR from FY2020 to FY2024 before reversing in FY2025 as UK government project work slowed and the Workday partner ecosystem digested a slower enterprise software cycle.
The FY2025 step-down has two components: revenue fell 4% (a mild headcount-and-utilisation reset) but operating profit fell 30% (significant operating deleverage). When a services business loses ~$20M of revenue without taking matching cost, every dollar of lost revenue costs roughly 80c of operating profit. Workday Services and Digital Services both shrank; Workday Products (the high-margin software piece) kept growing.
Gross margin actually held in FY2025 (47.9% versus 49.0%), so the entire margin story is operating-cost absorption, not pricing. Bill rate is intact; utilisation is the issue.
The half-yearly trajectory shows the cycle clearly
Kainos reports semi-annually (UK convention), so the 7 most recent half-year prints are the right cadence to watch.
The H2 FY2025 print (Oct 2024–Mar 2025) is the data point the bull and bear cases hinge on: $15.1M of operating profit on $238M of revenue is a 6.4% margin — half the long-run number. H1 FY2026 recovered to 13.3% ($35.1M on $264M), back inside the historical band but not yet at the FY2024 16% peak.
Cash Flow and Earnings Quality
Earnings quality is genuinely high. Free cash flow has exceeded reported net income in three of the last four years, and operating cash flow has covered net income at 1.25x–1.65x. Capex is tiny (under 2% of revenue), there is no acquired-intangible amortisation that would inflate cash relative to GAAP, and stock-based compensation runs at 1.6%–2.5% of revenue — modest by software/services standards.
Reader's note. A simple test of earnings quality is the FCF-to-net-income ratio. A number consistently above 1.0 means "the cash showed up"; consistently below means accounting earnings outrun the bank account. Kainos screens green here.
FY2025 is informative: revenue down 4% and net income down 27%, yet FCF only fell 12%. Working capital released cash (receivables shrank as revenue did), and capex was halved. The cash machine is more resilient than the GAAP earnings line.
Where the cash actually goes
| Item | What it is | FY2025 ($M) | Read |
|---|---|---|---|
| D&A | Non-cash depreciation/amortisation | 7.1 | Low — asset-light services model |
| Capex | Cash spent on PP&E and intangibles | (4.4) | Under 1% of revenue |
| Stock-based comp (SBC) | Equity grants expensed in P&L (non-cash to OCF) | 7.7 | 1.6% of revenue — modest |
| Dividends paid | Cash to shareholders | (46.3) | Now exceeds net income |
| Net buybacks | New buyback programme launched Nov 2025 | (29.2) | Large pivot vs prior years |
| Acquisitions | Davis Pier (Canada, FY2025); Blackline (FY2024); Cascade (FY2022) | 0 | Lumpy, tuck-in scale |
The FY2025 dividend payout ratio reached 100.5% (dividends per share $0.37 vs EPS $0.37). Combined with the $29M buyback, the group returned $75M of capital on $72M of FCF — funded out of the cash pile. That is sustainable for a year or two given $166M of net cash, but not indefinitely if margins do not recover.
Quality flag, not a red flag. FY2025 cash returns exceeded FCF by ~$3M. The $166M cash pile absorbs this comfortably for now, but the dividend at FY2025 earnings power is exactly covered, with no margin of safety. A second weak year would force either a buyback pause, a dividend rebase, or both.
Balance Sheet and Financial Resilience
Kainos has one of the cleanest small-cap balance sheets you will encounter. Total debt at FY2025 was $7.2M against $173.1M of cash — a $166M net cash position equal to ~13% of market cap. Goodwill from the small acquisition programme is $48M (14% of assets), intangibles another $5M.
Net debt / EBITDA is negative (i.e., net cash) in every year, deepening to -2.7x in FY2025 even as EBITDA fell. Interest coverage at 128x is essentially "no interest burden". The current ratio of 1.7x and quick ratio of 1.4x mean current assets cover 12 months of current liabilities with comfortable cushion.
Working capital signature
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Read |
|---|---|---|---|---|---|
| Days sales outstanding (DSO) | 46.3 | 37.8 | 38.8 | 39.9 | Stable; no collections deterioration |
| Days payables outstanding (DPO) | 110.6 | 93.8 | 95.8 | 99.5 | Long — typical of services, paying suppliers/sub-contractors slowly |
| Cash conversion cycle | -64.3 | -55.9 | -57.1 | -59.6 | Negative = customers fund the business |
A negative cash conversion cycle is structurally favourable: customers pay before suppliers do, so growth releases cash rather than absorbing it. In a downturn this reverses (less revenue → less customer cash inflow than supplier outflow), which is part of why FCF held up rather than soared in FY2025.
Resilience verdict. Kainos has the balance sheet of a company that could buy back 10% of itself, double its dividend, or weather a two-year revenue recession without external funding. The risk is not solvency. It is whether to use the cash, and on what.
Returns, Reinvestment, and Capital Allocation
Returns on capital are the headline number that explains the historical valuation premium. ROIC north of 50% is not a typo — it reflects an asset-light services business where invested capital (working capital + a tiny PP&E base + small goodwill) is a fraction of revenue. Even at the FY2025 trough, ROIC of 38.8% would be top-decile in most sectors.
The trajectory matters: ROIC peaked at 62% in FY2023 and has compressed each year since. The FY2025 reading is still elite, but the direction shows that operating leverage works in both directions. If margins normalise back to 15%+ operating, ROIC returns to 50%+. If they settle at 11-12%, ROIC sits in the 35-40% range.
Capital allocation — a clear pivot in November 2025
For its first decade as a public company (IPO 2015), Kainos returned cash exclusively via a growing dividend. The $40M buyback authorised in November 2025 is a meaningful policy shift — management is signalling that the share price is below intrinsic value at current levels, and that it would rather buy stock than hoard cash. The buyback is being executed via Investec with shares cancelled (not held in treasury), which directly reduces the share count.
Per-share economics
Share count had been creeping up from SBC dilution (≈1% per year) until the FY2025 buyback reversed the trend — period-end shares fell from 124.0M (FY2024) to 121.5M (FY2025), an outright 2% reduction. With the programme continuing into FY2026, dilution should be a non-issue for the foreseeable future.
Allocation verdict. Long history of conservative, dividend-led capital return; very small bolt-on M&A (Cascade FY2022, Blackline FY2024, Davis Pier Canada FY2025) at sensible prices; first-ever buyback programme in FY2026. Management has earned the right to be trusted with cash.
Segment and Unit Economics
Detailed per-segment financial JSON is not available in this run (the segment file is empty), so the picture below is built from the FY2025 annual report disclosure cited in upstream business research and the half-year update commentary.
Kainos has three reporting segments. The most recent disclosed mix:
| Segment | What it does | Approx FY2025 revenue mix | Revenue trend FY24→FY25 | Margin character |
|---|---|---|---|---|
| Digital Services | Bespoke digital builds for UK government, healthcare, commercial | ~46% (~$219M) | Down (UK public-sector slowdown) | Project-based, mid-teens margin |
| Workday Services | Implementation/advisory for Workday HCM/Finance | ~32% (~$152M) | Down (Workday partner ecosystem cycle) | Project + managed services |
| Workday Products | Smart Test, Smart Audit etc. — Kainos's own software on Workday | ~22% (~$105M) | Up (subscription growth) | High-margin software, ~25%+ EBITDA |
The Workday Products line is the strategic prize: it is software, not services, with subscription economics, and it was the one segment that grew through FY2025. Management raised long-term ARR targets for Workday Products at the 2025 capital markets day, and the Davis Pier acquisition (Canada) extended the public-sector services franchise into a new geography.
Reader's note. A services company with a growing software adjacency is the classic "compounding margin mix" story. Today, ~22% of revenue carries software-grade economics. If that share grows to 30%+, blended margin should structurally rise even at flat headcount.
Valuation and Market Expectations
Today's price (~$11.27, May 2026) puts Kainos on:
- Trailing P/E ~17.5x (TTM EPS ~$0.68)
- Forward P/E ~18x (consensus FY2026E)
- EV / EBITDA ~14x (TTM) — was 30x in FY2022, 27x in FY2023, 16x in FY2024
- EV / Sales ~1.85x
- P / FCF ~16x (TTM)
- P / Book ~7.0x
- Dividend yield ~3.5%
The shape of this chart is the entire valuation debate. From FY2022 to FY2025, P/E halved (46x → 24x), EV/EBITDA halved (30x → 14x), EV/Sales fell almost two-thirds. This is a textbook re-rating from "premium UK SaaS-adjacent compounder" to "high-quality cyclical services name". Whether the new multiple is too low depends entirely on what FY2026/FY2027 margins do.
Bear / Base / Bull range
| Scenario | FY27 op margin | FY27 revenue | FY27 op profit | Implied EV/EBIT | EV @ 15x op profit | Per share scenario value |
|---|---|---|---|---|---|---|
| Bear — 11.5% margin sustained | 11.5% | $545M | $63M | trades at 12-14x | $872M EV → $1.05B MCap | ~$8.44 |
| Base — 14% margin recovery | 14.0% | $572M | $80M | 15x | $1.20B EV → $1.38B MCap | ~$11.30 |
| Bull — 16% margin restored, software mix lifts | 16.0% | $613M | $98M | 18-20x premium | $1.77B EV → $1.95B MCap | ~$16.07 |
The base case sits very near the current price. The base case also lines up with the consensus of ~17-18x forward earnings. The Berenberg, Canaccord Genuity, Peel Hunt and Stifel sell-side consensus implies bull-case targets in the $15–$18 range; Deutsche Bank's downgrade to Hold at $11.71 sits close to the bear end.
External fair-value models published in May 2026 put fair value around $9.16 (i.e., trading at a 23% premium to that anchor). Other sell-side intrinsic-value models are even tougher, citing relative value of ~$3.48 per share. Both rest on assumptions that FY2025 margin compression is structural, not cyclical.
Valuation reads. At 17-18x forward earnings, Kainos is no longer at a "growth premium" multiple — but the level does not yet treat it as a "value" name for a 14-15% operating margin business with elite ROIC and net cash. The valuation is reasonable if margins recover, fair if margins stay at FY2025 trough, and stretched if margins compress further. The buyback signals management's view of the first outcome.
Peer Financial Comparison
Kainos competes for the same client wallet as a handful of UK-listed IT services peers, the closest pure-play digital-transformation comparable (Endava), and at scale the global IT services giants (Cognizant). Note that BYIT financial detail is not available in this run; it is included for cap context only. All figures converted to USD at the latest spot or fiscal-year-end FX rate as appropriate.
All currency figures converted to USD at latest spot (live market caps) or fiscal-year-end (financials) rates. Cross-currency multiples (P/E, EV/EBITDA) are unitless and directly comparable.
The peer table makes the financial profile of Kainos unusually clear:
- Margins. At its FY2025 trough, Kainos's 11.6% operating margin still beats every UK-listed peer except the (much larger and slower-growing) Cognizant. Endava's margin collapsed to 4%; NCC posted an operating loss; Computacenter runs structurally low single-digit margins because it includes hardware resale. At a normalised 14-16% margin, Kainos would be the highest-margin name in the cohort.
- Returns on capital. Kainos's 38.8% ROIC at trough is roughly 2x the cohort. This is the single most important number explaining why the stock historically traded at a premium multiple.
- Balance sheet. Net cash equal to ~13% of market cap is unique in this cohort — only Computacenter approaches it in absolute terms ($856M cash on $5.4B cap = 16%).
- Growth. -4% in FY2025 is worse than DAVA (+4%) and CCC (+32%, helped by US public-sector wins), but better than NCC (-26%). H1 FY2026 reversal to +7% restores Kainos to mid-pack growth.
- Multiple gap. EV/EBITDA of 14x is in line with DAVA and CCC, half of CCC's P/E and meaningfully above CTSH (mega-cap discount). The 3.5% dividend yield sits comfortably above the cohort.
The honest read: Kainos is not the obvious "discount" trade in the peer set on a current-period basis (CTSH is cheaper on most multiples). It earns its multiple through the combination of best-in-class returns on capital, fortress balance sheet, and the optionality of margin recovery. If you believe that combination, today's multiple is reasonable; if you don't, the discount comparables are CTSH at 11x P/E or DAVA at 11.5x.
What to Watch in the Financials
| Metric | Why it matters | Latest value | Better | Worse | Where to check |
|---|---|---|---|---|---|
| H1 FY2026 operating margin | Tells you if FY2025 H2 was the trough or the new normal | 13.3% (printed Nov 2025) | >14% | <12% | Half-year results November 2026 |
| Revenue growth (H2 FY2026) | Confirms whether the Q1 +7% recovery sustains | +7% in H1 FY26 | >8% | <3% | Year-end trading update + FY2026 results |
| Workday Products ARR | The mix shift to high-margin software | management raised LT targets at 2025 CMD | strong double-digit | flat or declining | FY/H1 disclosures |
| FCF / net income ratio | Earnings quality test | 1.56x in FY2025 | >1.2x | <1.0x | Cash flow statement |
| Net cash balance | Bandwidth for buyback + dividend + M&A | $166M | flat or growing | falling >$25M without offsetting return | Balance sheet |
| Dividend payout ratio | Sustainability of the 3.5% yield at trough earnings | 100% in FY2025 | <80% | >100% sustained | Annual report |
| Buyback execution pace | Signals management's confidence in intrinsic value | $40M programme launched Nov 2025 | continued / extended | paused | RNS announcements (monthly) |
| ROIC | The number that justifies the premium | 38.8% in FY2025 | back above 50% | below 30% | Annual ratios |
What the financials confirm: Kainos is a high-quality, cash-generative, debt-free services business with elite returns on capital and a credible software-mix optionality. Capital allocation has shifted from "all dividend" to "dividend + buyback" at exactly the time the multiple compressed — a textbook value-creating move if intrinsic value is anywhere near consensus.
What the financials contradict: the FY2025 numbers do not yet support the bull-case "compounder" narrative. Operating margin compressed 4 percentage points, ROIC fell 20 points, EPS fell 27%, and the dividend payout ratio touched 100%. Until margin recovery is visible in two consecutive prints, the equity is a "show me" story trading at a "show me" multiple.
The first financial metric to watch is the H1 FY2026 operating margin (already 13.3% in the November 2025 print) — and whether the H2 FY2026 result confirms the bounce or relapses toward the H2 FY2025 trough. That single data point is what would shift the multiple toward FY2024 levels or toward the bearish fair-value anchors near $8.