It surprises me not in the slightest that Kainos Group (LSE: KNOS) was marching to fresh record highs above 300p per share on Monday.
The software specialist has the wind in its sales with demand from both new and existing customers continuing to boom, and this was illustrated in half-year trading details released today.
Kainos declared that revenues increased 2% during the six months to September, to £41.4m, a result that pushed adjusted pre-tax profit 1% higher to £7.1m. What really grabbed the eye, however, was news of a demand surge for its ‘Software as a Service’ (or SaaS) bookings which shot to £5.3m from £1.5m.
And in a promising sign for future revenues, the Belfast-based firm said that sales orders almost doubled year-on-year, to £63.4m from £32.6m in the corresponding 2016 period, while its sales backlog leapt to £97.1m, up 43%.
Continental march continues
These interim results underline the exceptional progress Kainos is making both at home and abroad.
In Europe the business boosted the number of clients on its books in the first half to 17 from nine in the same period last year, and Kainos now sources 26% of total sales from international clients versus 19% previously. And the company opened new offices in Frankfurt and Copenhagen (on top of new premises in Birmingham) in the first half in a bold statement of intent.
Tech stocks with stonking momentum often carry a premium and Kainos is no exception. With City analysts predicting a 5% earnings rise in the 12 months ending March 2018 the business sports a forward P/E ratio of 29.8 times.
But I consider this to be a price worth paying given the scope for explosive profits growth later on (indeed, current forecasts points towards a 21% earnings explosion in fiscal 2019 alone).
Meanwhile, the company is also highly cash-generative (the amount of cash on the balance sheet swelled by almost a third in the first half, to £27.3m), providing it with plenty of ammunition to deliver its exciting growth plans.
The drugs DO work
Alliance Pharma (LSE: APH) is another share tipped by the City to enjoy improving earnings momentum beyond the current period.
During 2017, the medicines dispenser is anticipated to report a 2% earnings rise, and to follow this up with a 13% advance next year.
These bubbly predictions come as no surprise as the Chippenham company, much like Kainos, makes impressive progress in international markets.
Alliance Pharma advised in September that, as sales at its Kelo-cote and MacuShield brands jumped 52% and 67% during January-June, group revenues advanced 8% to £50.3m. It said that demand for these products jumped thanks to “a combination of distribution gains in new territories and growth in the rates of sale in existing outlets, stimulated by our increased marketing investment.”
And the business has plenty of financial firepower to keep pushing organic investment, not to mention embark on further exciting bolt-on acquisitions like that of Sinclair Pharma made back in 2015 (cash and cash equivalents jumped £1.8m during the first six months of 2017 to £9m).
These factors, allied to the defensive nature of the pharmaceuticals sector, makes Alliance Pharma a seriously good pick for growth hunters in my opinion. And an extrememly-cheap forward P/E multiple of 15.1 times seals the deal.
