Compliance and maintenance services provider Kinovo (LON: KINO) continues to improve its profit in the six months to September 2022 and it has a strong order book.
Three-year visible revenues total £146m, which includes contracts and predictable spend. That underpins around 90% of the 2022-23 forecast revenues of £62.1m.
Revenues improved by one-quarter to £29.8m in the first half. Margins continue to rise with underlying pre-tax profit recovering from £1.61m to £2.1m. Cash generation was strong even though delayed VAT payments had to be made in the period.
The changes in regulation over the next 18 months provide further growth prospects. Fire safety legislation has recently come into force and the building inspector and building control approver registers will start in April 2024.
Financing
Net debt has fallen to below £100,000. However, in the short-term debt will increase again because of the requirements to finish contracts that are part of DCB, which was sold and then went into administration. Part of the deal was that Kinovo would guarantee the completion of projects. This could cost a total of £4.3m.
Net debt could reach £1.7m at the end of March 2023. If Kinovo achieves its forecasts, then there could be net cash by March 2024.
Canaccord Genuity forecast that pre-tax profit should improve from £3.8m to £4.8m. A further improvement to £5.6m is expected in 2023-24. Inflation of wages and other costs is a challenge, but Kinovo has managed to cope with this so far.
At 36p, the forecast multiple is six. That reflects the DCB overhang. If this can be paid for out of cash generation then investors will come round to the shares given the low rating.