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Better performance in H220

EMIS Group 21 January 2021 Update
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EMIS Group

Better performance in H220

FY20 trading update

Software & comp services

21 January 2021

Price

1,110p

Market cap

£703m

Net cash (£m) at end FY20

53.0

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.7

9.5

(6.4)

Rel (local)

1.3

(4.9)

4.1

52-week high/low

1226p

813p

Business description

EMIS is a software supplier to the UK healthcare market, with two divisions. EMIS Health supplies integrated care technology to the NHS, including primary, community, acute and social care. EMIS Enterprise is a business-to-business software provider to the healthcare market, including medicines management, partner businesses, patient-facing services and UK healthcare blockchain.

Next events

FY20 results

18 March 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS Group is a research client of Edison Investment Research Limited

EMIS saw trading gradually improve through H220 to finish the year slightly ahead of expectations. The company continued to support customers in dealing with the pandemic, with the recently acquired Pinnacle Systems’ software now being used in the nationwide vaccination programme. Progress was also made in product development with the launch of the first EMIS-X analytics product. We maintain our forecasts.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

EMIS adj dil EPS** (p)

DPS
(p)

P/E
(x)

12/18

149.7

33.4

40.4

45.0

28.4

27.4

12/19

159.5

41.0

53.5

51.1

31.2

20.8

12/20e

158.8

43.3

55.7

49.3

32.0

19.9

12/21e

164.1

44.0

56.4

53.1

34.0

19.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EMIS adjusted EPS – cash accounts for development costs and excludes exceptional items and amortisation of acquired intangibles.

FY20 trading slightly ahead of expectations

EMIS's update confirmed the business traded marginally ahead of expectations for FY20, with revenue and adjusted operating profit maintained at similar levels to FY19 (£159.5m and £39.3m respectively). Previous guidance was for adjusted operating profit to be slightly below the FY19 level. For FY20 we are forecasting revenue of £158.8m and adjusted operating profit of £37.8m – we maintain our forecasts pending FY20 results on 18 March. Net cash at year-end stood at £53m (ahead of our £45.1m forecast), benefiting from a £7.3m deferred VAT payment.

Supporting the vaccine roll-out

The EMIS Health business (c two-thirds of revenue) maintained market share in all key areas and saw steady underlying growth, helped by the COVID-19-related sale of lower-margin hardware. EMIS Enterprise, which was harder hit by COVID-19 in H120, saw trading gradually improve over H2 and the planned launch of the first EMIS-X analytics solution in Q4. The group acquired Pinnacle Systems in March 2020 and its software is now being used for the vaccination roll-out across England. The company is investing to scale this solution as it was originally designed to be used by community pharmacies but is now being used more widely.

Valuation: Earnings growth key to re-rating

Compared to a global group of healthcare software peers, EMIS trades in line on an EV/sales basis and at a discount on all other metrics. EMIS generates significantly higher operating profit margins, but with slightly slower revenue growth, generates lower earnings growth. Its dividend yield (2.9%) is significantly ahead of the group. Key to closing the P/E discount will be evidence that revenue growth is returning to the company’s medium-term goal of mid- to high single digits, in turn driving stronger earnings growth. We note that EMIS has good visibility (recurring revenue was 81% in H120) and a strong balance sheet with no debt.

Exhibit 1: Financial summary

£'000s

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

158,712

160,354

149,710

159,507

158,807

164,130

169,626

Cost of Sales

(14,151)

(14,674)

(14,236)

(15,407)

(21,217)

(15,965)

(17,225)

Gross Profit

144,561

145,680

135,474

144,100

137,591

148,164

152,401

EBITDA

 

 

52,288

49,222

48,919

55,632

53,747

55,343

58,313

Operating Profit (before amort. of acq. intang, SBP and except.)

38,897

34,895

32,991

40,794

42,847

43,443

45,413

EMIS adjusted operating profit

 

 

38,753

37,406

35,890

39,273

37,847

40,843

43,813

Amortisation of acquired intangibles

(6,639)

(6,717)

(6,202)

(7,317)

(7,304)

(5,726)

(4,172)

Exceptionals

(6,714)

(16,988)

1,657

(5,360)

782

0

0

Share-based payments

(473)

(550)

(766)

(1,290)

(1,000)

(1,300)

(1,300)

Operating Profit

25,071

10,640

27,680

26,827

35,325

36,417

39,941

Net Interest

(237)

(299)

(180)

(498)

(300)

(200)

(200)

Profit Before Tax (norm)

 

 

39,159

35,192

33,426

41,038

43,289

43,985

45,955

Profit Before Tax (FRS 3)

 

 

25,333

10,937

28,115

27,071

35,767

36,959

40,483

Tax

(5,208)

(2,074)

(5,355)

(5,022)

(6,796)

(7,022)

(7,692)

Profit After Tax (norm)

32,175

27,989

26,447

33,697

35,064

35,628

37,224

Profit After Tax (FRS3)

20,125

8,863

22,760

22,049

28,971

29,937

32,791

Ave. Number of Shares Outstanding (m)

62.8

62.9

63.0

62.9

63.0

63.0

63.0

EPS - normalised & diluted (p)

 

 

49.4

43.1

40.4

53.5

55.7

56.4

58.9

EPS - EMIS adjusted & diluted (p)

 

 

49.2

47.0

45.0

51.1

49.3

53.1

56.9

EPS - FRS 3 (p)

 

 

30.4

12.8

36.1

36.0

46.2

47.5

52.1

Dividend (p)

23.4

25.8

28.4

31.2

32.0

34.0

35.0

Gross Margin (%)

91.1%

90.8%

90.5%

90.3%

86.6%

90.3%

89.8%

EBITDA Margin (%)

32.9%

30.7%

32.7%

34.9%

33.8%

33.7%

34.4%

Operating Margin (before GW and except.) (%)

24.5%

21.8%

22.0%

25.6%

27.0%

26.5%

26.8%

BALANCE SHEET

Fixed Assets

 

 

133,292

122,979

117,920

101,089

109,035

104,451

100,421

Intangible Assets

110,953

100,844

96,807

82,345

86,769

81,943

77,671

Tangible Assets

22,187

22,037

21,000

18,399

21,179

20,679

20,179

Other fixed assets

152

98

113

345

1,087

1,829

2,571

Current Assets

 

 

46,088

56,900

53,107

67,278

83,395

95,948

111,234

Stocks

1,815

1,633

1,264

657

657

657

657

Debtors

39,970

40,148

36,223

33,047

35,677

37,772

39,037

Cash

4,303

13,991

15,620

31,099

45,061

55,518

69,540

Current Liabilities

 

 

(56,158)

(65,131)

(60,169)

(55,700)

(63,698)

(64,757)

(66,904)

Creditors

(51,425)

(65,131)

(60,169)

(55,060)

(63,058)

(64,117)

(66,264)

Lease liabilities

0

0

0

(640)

(640)

(640)

(640)

Short term borrowings

(4,733)

0

0

0

0

0

0

Long Term Liabilities

 

 

(9,080)

(6,734)

(8,199)

(8,469)

(11,118)

(8,183)

(5,543)

Long term borrowings

0

0

0

0

0

0

0

Lease liabilities

0

0

0

(3,294)

(5,474)

(3,874)

(2,274)

Other long term liabilities

(9,080)

(6,734)

(8,199)

(5,175)

(5,644)

(4,309)

(3,269)

Net Assets

 

 

114,142

108,014

102,659

104,198

117,614

127,458

139,207

CASH FLOW

Operating Cash Flow

 

 

43,657

48,834

49,873

50,059

58,895

55,327

59,195

Net Interest

(324)

(356)

(214)

(93)

(300)

(200)

(200)

Tax

(7,655)

(8,139)

(5,830)

(4,466)

(9,307)

(8,357)

(8,731)

Capex

(12,084)

(11,342)

(12,767)

(13,119)

(13,500)

(12,300)

(12,300)

Acquisitions/disposals

(1,790)

329

(9,269)

5,152

(420)

(1,020)

0

Financing

881

571

906

(2,369)

200

(500)

(500)

Dividends

(14,006)

(15,476)

(21,070)

(18,745)

(20,006)

(20,893)

(21,842)

Net Cash Flow

8,679

14,421

1,629

16,419

15,562

12,057

15,622

Opening net debt/(cash)

 

 

9,109

430

(13,991)

(15,620)

(31,099)

(45,061)

(55,518)

Finance leases initiated

0

0

0

(940)

(1,600)

(1,600)

(1,600)

Other

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

430

(13,991)

(15,620)

(31,099)

(45,061)

(55,518)

(69,540)

Source: EMIS, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by EMIS Group and prepared and issued by Edison, in consideration of a fee payable by EMIS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by EMIS Group and prepared and issued by Edison, in consideration of a fee payable by EMIS Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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