London-based software firm Kainos is set to benefit from an increase in spending on information technology by the UK’s National Health Service (NHS) starting in the financial year 2025, analysts have said.
Chancellor Jeremy Hunt announced the British government will inject £3.4bn from 2025-28 on various NHS digital initiatives in his Spring Budget last week.
The increase in spending could provide several opportunities for FTSE 250 company Kainos, which provides digital services and is involved in NHS digital transformation projects.
“Beyond work on the NHS app, Kainos looks well-placed to compete for AI and broader automation projects in 2025+,” analysts at Canaccord Genuity wrote in a broker’s note published on Wednesday.
“Last week’s Budget provides a welcome shot of additional investment into the NHS’ technological and digital transformation, committing an extra £3.4bn over three years from 2025/26,” they added.
It is the largest investment into NHS digitisation since the £2.1bn allocated in the October 2021 budget, equating to around £700m per year.
Hunt’s boost to the NHS could help breathe new life into Kainos shares, which have tumbled over 16 per cent in the past year. The stock was in the red on Wednesday, hovering around 0.6 per cent.
However, Canaccord Genuity said there is heightened competition for winning digital transformations contracts within the UK government. Kainos is up against incumbents such as Accenture, IBM and Deloitte.
The Canadian-headquartered broker has rated Kainos a ‘hold’ and analysts there “remain cautious” due to some risks in the short term.
These risks include a lofty price to earnings ratio, 22 times the estimated earnings for the financial year 2024, that suggests the stock might be considered overpriced. And the firm’s growth rate is projected to experience “relatively muted” growth in the mid to high single digits range, which is considered modest compared to faster-growing companies.
The extra cash for NHS will be used to improve digital patient information, upgrading the NHS app to provide a wider range of health services, automating admin tasks, creating digital IDs for NHS staff and upgrading hardware and software.