Kin and Carta PLC (LON: KCT)

Kin and Carta PLC is an FTSE All-Share index listed United Kingdom-based company that offers digital transformation services. KCT focuses on applying data and technology to assist clients to invent, market and operate new digital products and services. The Company operates across geographies such as the United States, United Kingdom, and Argentina.

(Source: Company Presentation)

Technological Initiatives: The Company had launched five global service lines to serve the key needs of DX 2.0: Cloud + Platforms, Data + AI, Products + Services, Strategy + Innovation, and Managed Services.

Growth Prospects

• New Contracts: The Company had managed to win contracts with several prestigious clients such as UK Government Home Office, Santander, The Economist, US Foods, Hewlett-Packard, and Blue Cross Blue Shield.
• Cascade Data Labs Acquisitions: KCT had successfully integrated Cascade Data Labs and aimed to expand Western US presence and launched a new data proposition.
• Strong Clients Engagement: KCT had shown a significant growth in volume and scale of client engagements as the clients having more than £1 million of annual net revenue rose from 19 in FY20 to 30 clients at the end of FY21.
• Significant Backlog: The Company had shown a robust year-on-year growth of 31% in the backlog value to £78 million at the end of September 2021.
• Global B Corp Certification: On 01 December 2021, KCT updated that it became the first business on the London Stock Exchange to achieve global B Corp Certification.

Key Risks

• Lack of Relevant Technological Advancement: The Company’s top-line business and bottom-line business would be adversely impacted in case KCT lacked innovation in developing new products.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.

Now we will analyse some key fundamental and shareholders statistics of Kin and Carta PLC.

Jupiter Asset Management Ltd. is the most significant shareholder as it holds nearly 16.96 million shares as of 30 September 2021. 

Financial and Operational Highlights (for twelve months ended 31 July 2021 as of 26 October 2021)

(Source: LSE Website)

• Decent Revenue Growth: The adjusted net revenue from continuing operations grew by around 12.50% from £125.7 million during FY20 to £141.40 million for FY21.
• Robust Growth in Profitability: On the profitability front, the adjusted profit before tax rose by around 61% to £13.0 million during FY21.
• Strengthening of Balance Sheet: With regards to the balance sheet, the Company had shown a significant reduction in the net debt to £19.20 million as of 31 July 2021, while it had reported a net debt of £31.60 million at the end of FY20.
  

Financial Ratios (FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 3 December 2021, at 09:41 AM GMT, KCT’s shares traded at GBX 297.51, up by around 1.54% against the previous day closing price. KCT’s 52-week High and Low were GBX 359.00 and GBX 103.67, respectively.

On a daily chart, the stock price sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Meanwhile, the 14-days RSI stood at 45.09 levels.

KCT’s stock has delivered an impressive positive return of ~175.47% in the last one year. Also, it has outperformed the FTSE All-share Software & Computer Services Index with a return of 25.27% and the FTSE All-Share index with a return of around 10.92%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had shown a decent top-line business and bottom-line business growth during FY21, supported by the strong US markets, which remained as the largest digital transformation market in the world. Moreover, KCT stayed on the verge of several disposals and made significant headroom for key acquisitions. Meanwhile, the Company had raised organic net revenue guidance from 20% year-on-year growth to 30% for FY22. KCT had a long-term goal to double the net revenue organically over the next four years. However, the stock price may demonstrate sizeable correction amid rising interest rates and ongoing investors’ worries regarding the Omicron variant of the Covid-19 pandemic. In a nutshell, the Company expects to remain in a net cash position at the end of FY22 to pursue further acquisition activities.

Considering the impressive revenue guidance for FY22, several new contracts, improved cash position, decent bottom-line business, strong operational progress, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Kin and Carta PLC at the current price of GBX 297.51 (as on 03 December 2021 at 09:41 AM GMT), with lower-double digit upside potential based on 50.74x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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