Pinned valuation:
Three weeks ago when Kinatico released its Q2 results I noted in a previous straw; this was an interesting business which I would like to own, but at what price?
I’ve been nibbling a bit since then while trying to get a better grasp on a valuation for the business.
Kinatico’s revenue has been quickly shifting toward SAAS. Until recently the market was grasping at SAAS businesses with great enthusiasm. However, that all changed over the last month as Anthropic released its new Claude legal product. The market is now worried about AI applications extending to other industries and competing directly with existing SAAS businesses. The big question now is, “will AI eat the lunch of all/most/some SAAS businesses, or will it actually benefit some SAAS businesses?” I don’t know the answer to that.
Kinatico’s switch to mostly SAAS revenue (58% of revenue in Q2 FY2026) has come at a bad time. With a market cap of just $90 million and with the future of SAAS questionable, Kinatico’s share price has been taking a pummelling lately. Yesterday Kinatico shares traded as low as 17 cps, closing at 17.5 cps (down 14.6% for the day). The share price has halved from its all time high of 34 cps in November 2025.
Kinetico is on the verge of potentially growing its earnings in excess of 50% per year through rapidly increasing revenues and some margin improvement. It is only 3 weeks out from a very positive announcement that confirms the business is on track with over 40% growth in SAAS revenue, yet the share price was down 17.5% at one point yesterday! Perhaps it was just overpriced late last year and it is now starting to look like reasonable value?
Kinatico Ltd provides screening, verification, and SaaS-based workforce management and compliance technology systems in Australia and New Zealand. The company offers Kinatico Compliance, a SaaS-based compliance solution that offers simplified people management workflows to streamline the entire employee lifecycle; and Kinatico CVCheck, which provides pre-employment screening services. It also provides a suite of software solutions that enables scalable compliance monitoring, including pre-employment to real-time requirements related to geo-location, roles, and activities applicable across a range of industries (Simply Wall Street).
Could this workflow be easily disrupted by AI? I have no idea at this point in time, but it is certainly a risk!
Three weeks ago (14 January 2026) Kinatico CEO Michael Ivanchenko said: "Annualised SaaS revenue has grown 42% to $19.7m, with SaaS now representing 58% of quarterly revenue. This is clear evidence of the success of our strategy. At the same time, we have launched our new solution, Kinatico Compliance continues to resonate with SMEs and also large enterprise. The combination of the ongoing operational performance and the addition of our new solution gives confidence that we are well positioned for continued momentum. Disciplined execution, while remaining cash accretive reflects the operational leverage emerging in the business. To the Kinatico team—thank you for your continued commitment to our customers and delivery of our common goals. These results are yours.”
For such a small business I am surprised by the analyst coverage on Simply Wall Street.
Most of the analysts could be sipping from the same Kool-aid, because there is reasonably good agreement on future earnings growth for the business. The Q2 FY26 result supports the thesis the business is on track to achieving very strong revenue and earnings growth. Consensus is that EPS will grow over 50% annually over the next few years. I think that’s feasible given H1 2026 SAAS revenue was up 49% on the same time last year.
Analysts are forecasting earnings to be 6 times higher in FY2028 (ie. 0.269 cps in FY25 to 1.7 cps in FY28).
Currently KYP is currently trading on 80x FY25 earnings (0.27 cps) which sounds expensive. However, PE is forecast to be 41x in FY26 (0.5 cps per share), 17x in FY27 (1 cps per share), and 10x in FY28 (1.7 cps per share). That’s providing everything goes smoothly, the business remains competitive in the space, and it is not disrupted by AI. There’s a lot that can go wrong.
Valuation
Over the last 2 years Kinetico shares have traded on a PE between 77x and 32x earnings, with a midpoint of 54x. Assuming revenue continues to grow at 40% annually and margins improve slightly, it’s feasible earnings could 1 cps in FY27. At a PE of 25x that would make Kinetico worth 25 cps in FY27. Discounting back at 10% per year, the valuation comes back at about 20 cps.
Analyst consensus 1yr price target is 45 cps.
I ran Kinetico fundamentals through McNiven's Valuation formula, assuming equity of 7 cps, ROE of 15%, 100% of earnings reinvested. At the current price of 17.5 cps the annual return would be 9%. This isn’t a high ROI, however I expect ROE will improve quickly and by FY28 could be over 20%. I think the business is close to an earnings growth and ROE inflexion point (see graph below).
Analyst forecasts (consensus of five analysts on Simply Wall Street).
Kinetico has no debt and over $10 million in cash, so there is little risk of a capital raising.
I have gradually added Kinetico shares IRL over the last week and intend to add more on further share price weakness. I see excellent value in Kinetico at the moment given the current earnings growth forecasts.
Held IRL (0.4%)
@Rick interesting business, I agree. Also a shout out to @jcmleng for your deep dive into the companya while ago. That's a great resource.
As I've looked at is, one question I have (among many) is gross margin evolution.
From 2018 to 2024 %GM increased steadily from 51% up to 67%, in the way we are used to seeing as SaaS companies scale.
However, - with what I can only take as being due to the launch of Kinatico Compliance - we saw in FY25 the gross margin step back down to 65%. Now I am yet to trawl through the available transcripts, and I imagine the explanation is given there. And I wonder if it because the Compliance product has to interface with external systems to perform checks and that these checking transactions carry a fee?
So my question is for those who have looked at this more deeply than I have:
1) Why did %GM step down in FY25?
and, more importantly,
2) How are you thinking about the evolution of %GM in the future - next 10 years?
It the step down is due to the contribution of external fees from Complaince SaaS, and if the SaaS product is growing at double the rate of the business, what is the %GM trajectory?
Unsurpisingly, $KYP has been beaten down with other SaaS stocks, which it interesting because it wasn'y very high rated to begin with.
It is in a space with lots of competitors, and I think it is interesting in eyeing Asia for potential overseas expansion. Of course, it has a large market in ANZ for which it has barely scratched the surface. For example, just looking at a few segments where people compliance is important, the Aussie work force in aged care, child care, and disability services is around 1 million people. This space is dominated by SMBs, the large majority of whom are not sophisticated software buyers.
I'm not a buyer yet, because I prefer to invest in global leaders, but the track record of $KYP in building a profitable, cash generative business, while still a SaaS microcap is pretty impressive and a testament to the quality of the management team. Depending on how the numbers fall, its valuation could be very undemanding.
DIsc: Not held, but looking --- after all, there's no such thing as too much SaaS in a portfolio!!