Richard takes a tilt at Kainos, a software consultancy and developer that spooked investors in 2024 and 2025 and righted itself in 2026. Cerillion, Alfa, and Dunelm also feature.
5 Strikes
Since my last update, six companies have published annual reports and passed my minimum quality filter. Of them, I only awarded Dunelm less than three strikes.
|
Name |
TIDM |
Prev AR |
Strikes |
# Strikes |
|---|---|---|---|---|
|
CLIG |
City of London Investment Group |
15/9/26 |
– Holdings – Growth – Shares |
3 |
|
SPR |
Springfield Properties |
15/9/26 |
? Acquisitions ? CROCI – Growth – ROCE – Shares |
4 |
|
GTLY |
Gateley |
11/9/26 |
– Holdings ? CROCI – Debt – ROCE – Shares |
4 |
|
DNLM |
Dunelm* |
8/9/26 |
– Debt |
1 |
|
FXPO |
Ferrexpo |
3/9/26 |
– Holdings – CROCI – Growth – ROCE |
4 |
|
IOM |
Iomart Group |
2/9/26 |
? Acquisitions – Debt – ? Growth – ROCE |
3 |
|
17/09/2026 |
||||
When I went to download Dunelm’s annual report I discovered it has not yet actually published it, despite the publication date in ShareScope.
I have run it through the 5 Strikes process anyway because the data is up to date from the preliminary results, and I don’t want to forget.
Dunelm [- Debt]
Dunelm is a popular homewares retailer. When it publishes, I may look into the company in more detail because it achieved only one strike. Generally, I am researching companies in order starting with those with the lowest number of strikes.
The strike for debt is straightforward. I give companies a strike when net borrowings (including lease obligations and pension deficits) are more than 25% of capital employed.
Dunelm’s ratio of net borrowings to capital employed is routinely over 60%
Hitherto, Dunelm has easily been able to afford the interest payments because it is highly profitable and cash generative.
The next company on my watchlist is Kainos.
Kainos [? Growth]
When I appraised Kainos’ director holdings and financial history in August, I gave it no strikes. I questioned its growth, though:
Kainos is an IT consultancy and software developer. I struggle with its complexity and the disruptive emergence of Artificial Intelligence (AI), but I am attracted to the way Kainos does business.
It is perhaps the archetypal people business. Kainos recruits only the “very best” and builds “careers for life”. Its chief executive joined as a trainee software engineer. He owns 9% of the shares.
In recent years employee retention has been 90% or more. UK employees receive up to £3,600 in free shares every year. Kainos wants to change the way partners, mainly large public sector organisations, work for the better.
The company’s biggest division (56% of revenue) helps organisations improve their software infrastructure often with bespoke applications. “Success Stories” (aka Case Studies) on its website include the NHS Wales app.
The 2026 annual report highlights work with the Home Office on the digital infrastructure for managing people and goods at the UK border; the Department for Transport on bus data services; and the Driver and Vehicle Standards Agency (DVSA), to make it easier to schedule driving tests (and more).
This Digital Services business grew in 2026 through the acquisition of Davis Pier, a Canadian analog, but it also contributed to Kainos’ troubles in 2024 and 2025. The General election reduced demand in 2025 as public sector projects were delayed, but demand recovered strongly in 2026.
Overall, Digital Services revenue increased 8% in the period between 2023 and 2026, but revenue from commercial customers has crumbled from £38m (17% of total Digital Services Revenue) to £10.7m (4.4%).
Kainos says businesses have invested less in software systems due to economic uncertainty, and in 2026 it all but gave up on recruiting new commercial customers, preferring to focus on public sector work.
Kainos’ other two divisions are Workday Products and Workday Services.
Workday is a software platform that handles the administrative activities for an organisation, including Human Resources, finance, legal and operations.
Kainos’ relationship with Workday is multifaceted.
- Services: Workday recommends Kainos and other consultancies to customers who need help implementing and maintaining their set ups.
- Products: Workday identifies capabilities that it does not plan to develop itself and enables developers like Kainos to develop add-ons. These products belong to Kainos. They are sold on Workday’s marketplace and directly by Kainos. Workday also sells one Kainos product exclusively.
Workday Services (implementations etc.) also contracted in 2025, and has grown only marginally over the last three years. The contraction was due to a big increase in the number of consultancy partners used by Workday, which created more competition and discounting.
Kainos appears to be dependent on Workday’s platform, and I think Workday makes the rules.
It’s quite a dependency. Workday Services and Workday Products contributed a combined 44% of revenue in 2026 and that figure is likely to increase.
Workday Products is Kainos’ fastest growing division (86% revenue growth over the last three years), it has the highest profit margin, and it is also probably the division Kainos expects to grow fastest.
Source: Kainos annual reports
At the end of March 2026 Annualised Recurring Revenue (ARR) for Workday Products was £89 million. By the end of 2030, it expects £200 million ARR.
Those targets are eye-catching, but I am wondering, mostly out of ignorance, about AI…
AI Disruption
The article that first got me interested in Kainos was published by ShareScope in 2019. A key ingredient in Kainos’s success was its early adoption of Agile, a software development method that is more flexible than the traditional way of specifying and developing software to a tight specification (the Waterfall model).
SharesScope writer Alistair Blair wrote: “I would wager that most of the huge IT projects which have been abandoned after costing the taxpayer millions and sometimes billions of pounds were run according to the Waterfall model.”
I wonder how relevant Agile is now that AI writes software.
Kainos’ annual report in 2026 doesn’t mention it. I’m sure aspects of the Agile method still infuse the company’s culture, the near continuous collaboration with the customer it requires, for example, but it’s unnerving when companies that were once good at one thing must become good at another.
Workday is opening up its software to AI agents (autonomous programs controlled by AI that do things people used to do). Kainos, is one of fifteen third party companies providing agents. I also wonder whether agents will become the new interface to the data and algorithms in software, by-passing traditional front ends.
AI agents are expected to replace human operators and Kainos charges per user for its software products. The company says it could change to usage-based charging, but that may not be as profitable.
Software companies are in the frontline of technological disruption, so perhaps it is not surprising that reading their annual reports I generate more questions than answers!
This year I have been following Cerillion and Alfa, two listed software companies that also score zero strikes, partly because their charges are based on transactions, not users. They should not be affected as much if AI takes the place of human operators.
Highly rated by me, these companies are lowly rated by the stockmarket. Cerillion trades on a EV/EBIT ratio of 9, Alfa on a ratio of 11. Kainos’ EV/EBIT ratio is 22.
There are many differences. Cerillion and Alfa are smaller and specialised in telecoms billing and lease finance respectively, but I find the discrepancy puzzling – notwithstanding last week’s profit warning from Cerillion.
All the 0’s, 1’s and 2’s
So far this year I have given 84 shares less than three strikes: 44 shares have two strikes, 27 shares have one, and 13 have none:
|
Name |
TIDM |
Prev AR |
Strikes |
# Strikes |
Link |
|---|---|---|---|---|---|
|
CER |
Cerillion |
12/1/26 |
0 |
||
|
HWDN |
Howden Joinery |
25/2/26 |
? Holdings |
0 |
> |
|
PRV |
Porvair |
11/3/26 |
? Holdings |
0 |
|
|
NICL |
Nichols |
23/3/26 |
0 |
> |
|
|
MGNS |
Morgan Sindall |
24/3/26 |
0 |
||
|
QTX |
Quartix |
25/3/26 |
? ROCE |
0 |
> |
|
CCC |
Computacenter |
8/4/26 |
0 |
||
|
FOUR |
4imprint |
14/4/26 |
? Holdings |
0 |
> |
|
KEYS |
Keystone Law |
13/5/26 |
0 |
||
|
AUTO |
Autotrader |
8/6/26 |
0 |
> |
|
|
TAM |
Tatton Asset Management |
16/6/26 |
0 |
||
|
CWK |
Cranswick |
30/6/26 |
? Growth |
0 |
> |
|
KNOS |
Kainos Group Ltd |
24/7/26 |
? Growth |
0 |
|
|
BOWL |
Hollywood Bowl |
5/1/26 |
– Debt |
1 |
> |
|
MEGP |
Me Group |
23/3/26 |
– Growth ? ROCE |
1 |
|
|
ALFA |
Alfa Financial Software |
24/3/26 |
– Growth |
1 |
|
|
GAMA |
Gamma Communications |
24/3/26 |
? Acquisitions – Holdings |
1 |
|
|
INCH |
Inchcape |
24/3/26 |
– Growth |
1 |
|
|
ROR |
Rotork |
27/3/26 |
– Holdings ? Growth |
1 |
|
|
CKN |
Clarkson |
30/3/26 |
? Growth – ROCE |
1 |
|
|
RMV |
Rightmove |
30/3/26 |
– Holdings |
1 |
|
|
IMI |
IMI |
31/3/26 |
? Holdings – Debt ? Growth |
1 |
|
|
FDM |
FDM Group |
10/4/26 |
– Growth |
1 |
|
|
HILS |
Hill & Smith |
10/4/26 |
– Holdings ? Acquisitions |
1 |
|
|
NXT |
Next |
16/4/26 |
– Debt |
1 |
|
|
BAG |
Barr (AG) |
21/4/26 |
? Acquisitions ? Growth |
1 |
|
|
SAG |
Science |
21/4/26 |
? Growth |
1 |
|
|
ELCO |
Eleco |
9/5/26 |
– Holdings ? Growth |
1 |
|
|
LSC |
London Security |
15/5/26 |
– Holdings |
1 |
|
|
W7L |
Warpaint London |
22/5/26 |
– Shares ? Growth |
1 |
|
|
PETS |
Pets at Home |
9/6/26 |
– Holdings ? Growth |
1 |
|
|
BMY |
Bloomsbury Publishing |
19/6/26 |
– Growth |
1 |
|
|
HLMA |
Halma |
24/6/26 |
? Holdings ? Acquisitions |
1 |
|
|
XPS |
XPS Pensions |
13/7/26 |
? Holdings ? Debt |
1 |
|
|
LTHM |
Latham (James) |
23/7/26 |
– CROCI ? Growth |
1 |
|
|
GAW |
Games Workshop |
28/7/26 |
? Holdings |
1 |
|
|
JET2 |
Jet2 |
3/8/26 |
? Holdings ? CROCI ? Growth ? ROCE |
1 |
|
|
CBOX |
Cake Box |
5/8/26 |
? Acquisitions – Debt |
1 |
|
|
CFX |
Colefax |
12/8/26 |
? Growth |
1 |
|
|
DNLM |
Dunelm |
8/9/26 |
– Debt |
1 |
|
|
RWS |
RWS |
8/1/26 |
? Acquisitions – Growth – ROCE |
2 |
|
|
IHP |
IntegraFin |
9/1/26 |
– CROCI |
2 |
|
|
RFX |
Ramsdens |
15/1/26 |
– CROCI ? Growth ? ROCE |
2 |
|
|
REL |
RELX |
19/2/26 |
? Holdings – Debt ? Growth |
2 |
|
|
IHG |
InterContinental Hotels |
26/2/26 |
? Holdings – Debt |
2 |
|
|
DATA |
GlobalData |
2/3/26 |
? Acquisitions – Debt ? ROCE |
2 |
|
|
GSK |
GSK |
6/3/26 |
? Holdings – Debt ? Growth |
2 |
|
|
MONY |
Mony |
9/3/26 |
– Holdings ? Growth |
2 |
|
|
STEM |
SThree |
9/3/26 |
– Holdings – Growth |
2 |
|
|
CTEC |
ConvaTec |
10/3/26 |
? holdings – Debt ? Growth ? ROCE |
2 |
|
|
BNZL |
Bunzl |
17/3/26 |
? Holdings – Debt – Growth |
2 |
|
|
HIK |
Hikma Pharmaceuticals |
18/3/26 |
? Acquisitions – Debt |
2 |
|
|
YU. |
Yu |
18/3/26 |
– CROCI ? ROCE |
2 |
|
|
JSG |
Johnson Service |
19/3/26 |
– Holdings – Debt |
2 |
|
|
ITRK |
Intertek |
20/3/26 |
? Holdings – Debt ? Growth |
2 |
|
|
BA. |
BAE Systems |
24/3/26 |
? Holdings ? Acquisitions – Debt ? Growth |
2 |
|
|
DOM |
Domino’s Pizza |
24/3/26 |
– Holdings – Debt ? Growth |
2 |
|
|
LUCE |
Luceco |
25/3/26 |
? Acquisitions – Debt ? Growth ? ROCE |
2 |
|
|
BBY |
Balfour Beatty |
2/4/26 |
– Holdings ? CROCI ? Growth – ROCE |
2 |
|
|
APTD |
Aptitude Software |
8/4/26 |
– Holdings ? Acquisitions – Growth |
2 |
|
|
IGG |
IG Group |
8/4/26 |
– Holdings – Growth |
2 |
|
|
SPX |
Spirax |
8/4/26 |
– Holdings – Debt ? Growth |
2 |
|
|
SVS |
Savills |
9/4/26 |
– Holdings – CROCI ? Growth ? ROCE |
2 |
|
|
MACF |
Macfarlane |
10/4/26 |
– Holdings – Debt ? Growth |
2 |
|
|
PAGE |
Michael Page |
13/4/26 |
– Holdings? CROCI – Debt – Growth – ROCE |
2 |
|
|
CAML |
Central Asia Metals |
15/4/26 |
– Growth ? ROCE |
2 |
|
|
FEVR |
Fevertree Drinks |
20/4/26 |
– CROCI – Growth |
2 |
|
|
JDG |
Judges Scientific |
22/4/26 |
? Acquisitions – Debt – Growth |
2 |
|
|
WINK |
M Winkworth |
24/4/26 |
– Holdings – Growth |
2 |
|
|
EKF |
EKF Diagnostics |
27/4/26 |
? CROCI – Growth ? ROCE |
2 |
|
|
IOF |
Iofina |
1/5/26 |
? CROCI – ROCE ? Shares |
2 |
|
|
AEO |
Aeorema Communications |
18/5/26 |
– CROCI ? Growth ? ROCE |
2 |
|
|
ASY |
Andrews Sykes |
18/5/26 |
– Holdings – Growth |
2 |
|
|
CARD |
Card Factory |
21/5/26 |
– Holdings – Debt |
2 |
|
|
ANP |
Anpario |
1/6/26 |
? CROCI – Growth ? ROCE |
2 |
|
|
QQ. |
QinetiQ |
10/6/26 |
? Holdings ? Acquisitions ? Growth – ROCE |
2 |
|
|
OXIG |
Oxford Instruments |
23/6/26 |
– Holdings – Growth |
2 |
|
|
REC |
Record |
23/6/26 |
– Holdings – Growth |
2 |
|
|
POLR |
Polar Capital |
3/7/26 |
? Holdings – Growth |
2 |
|
|
ULVR |
Unilever |
28/7/26 |
– Debt – Growth |
2 |
|
|
BKG |
Berkeley |
11/8/26 |
? CROCI – Growth ? ROCE |
2 |
|
|
NTBR |
Northern Bear |
12/8/26 |
– CROCI ? Growth ? ROCE |
2 |
|
|
MSI |
MS International |
17/8/26 |
– CROCI ? Growth ? ROCE |
2 |
|
|
GDWN |
Goodwin |
28/8/26 |
– CROCI – Growth ? ROCE |
2 |
|
|
17/09/2026 |
|||||
Richard Beddard
Contact Richard Beddard by email: richard@beddard.net, web: beddard.net
This article is for educational purposes only. It is not a recommendation to buy or sell shares or other investments. Do your own research before buying or selling any investment or seek professional financial advice.
