EMIS Group |
Better performance in H220 |
FY20 trading update |
Software & comp services |
21 January 2021 |
Share price performance
Business description
Next events
Analyst
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* |
Diluted EPS* |
EMIS adj dil EPS** (p) |
DPS |
P/E |
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
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