This report is an updated version of the report published on 29^th April 2022 at 08:31 AM GMT+1

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.

Growth Prospects

• Acquisition & Disposals: KCT had aimed to complete three DX acquisitions for a total estimated consideration of £20.8 million. KCT had recently completed the divestment of non-core Ventures businesses for net proceeds of £33 million.
• Significant Backlog: The continuing strong demand led to a record backlog of £106 million as of 31 January 2022.
• 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 

• Federal Reserve Meeting: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022.
• Record UK Inflation: British inflation hit a 30-year high of around 7.0% in March 2022, which may cause a further interest rate hike.
• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.
• 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.

Key Fundamental and Shareholders Statistics of Kin and Carta PLC.

Jupiter Asset Management Ltd. is the most significant shareholder as it holds nearly 17.41 million shares.

H1 FY22 Financial Highlights (for the six months ended 31 January 2022, as of 24 March 2022)

(Source: Company Filings)

• Robust Top-line Business: The Company’s net revenue grew 63% YoY to £85.6 million during H1 FY22.
• Profitability: The adjusted profit before tax from continuing operations increased from £0.6 million during H1 FY21 to £5.0 million during H1 FY22.
• Divisional Performance: The Americas net revenue rose by around 76%, and Europe net revenue grew by approximately 41% for H1 FY22.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 29 April 2022 at 08:00 AM GMT+1, KCT’s shares were trading at GBX 230.00, the same as the previous day closing price. Stock 52-week High and Low were GBX 359.00 and GBX 169.14, respectively.

On a daily chart, the stock price is 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. Also, the 14-days RSI stood at ~43.16 levels.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company had shown a decent top-line business and bottom-line business growth during H1 FY22, supported by the strong US markets, which remained as the largest digital transformation market in the world. KCT had managed to win contracts with several prestigious clients such as UK Government Home Office, Wayfair, Wendy's, Canadian National, L'Atelier. KCT kickstarted H2 FY22 with a record backlog, and thus, it anticipated organic net revenue growth ranging from 35% to 40% and an adjusted operating margin of 10-11% for FY22. Overall, the Company expects to remain in a net cash position at the end of FY22 to pursue further acquisition activities.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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 market price of GBX 230.00 (as of 29 April 2022 at 08:00 AM GMT+1), with lower-double digit upside potential based on 37.98x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenario.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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