computer-desk-doctor-48604

Returning to business as usual

EMIS Group 13 July 2021 Update

EMIS Group

Returning to business as usual

H121 trading update

Software & comp services

13 July 2021

Price

1,196p

Market cap

£757m

Net cash (£m) at end H121

48.0

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.8

2.4

9.7

Rel (local)

0.8

(1.0)

(8.9)

52-week high/low

1,258p

960p

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 healthcare analytics.

Next events

Interim results

9 September 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS Group is a research client of Edison Investment Research Limited

EMIS has reported that H121 trading was slightly ahead of board expectations. The mix of business is returning to pre-COVID-19 levels and the company continues to focus on investing in its technology roadmap. While H121 performance was positive, we maintain our forecasts for FY21–23 pending H121 results, which are scheduled for 9 September.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

EMIS adj. dil EPS** (p)

DPS
(p)

P/E
(x)

12/19

159.5

41.0

53.5

51.1

31.2

22.4

12/20

159.5

43.4

56.4

50.4

32.0

21.2

12/21e

164.1

43.8

56.2

53.2

34.0

21.3

12/22e

172.7

46.5

59.7

57.4

35.0

20.0

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.

Return to business as usual in H121

Management noted it saw a return to business as usual in H121, despite the ongoing pandemic, and trading was slightly ahead of board expectations. Revenue and adjusted operating profit for H121 were ahead of both H120 and H119. EMIS Health saw lower margin hardware and connectivity-related sales revert to more normal levels compared to the high levels in H120 and continued to invest in its technology roadmap through H121. EMIS Enterprise saw double-digit growth year-on-year in both recurring and non-recurring revenues. This division is home to Pinnacle software, which is being used for the NHS vaccine rollout in England.

Confident outlook

EMIS closed H121 with net cash of £48.0m, down from £53.0m at the end of FY20 after settling the £7.3m deferred VAT payable, but up from £44.1m at the end of H120. Management confirmed its confidence in the outlook for the company. We maintain our forecasts, pending H121 results on 9 September.

Valuation: At a discount to peers

Compared to a global group of healthcare software peers, EMIS trades at a discount on all valuation metrics. EMIS generates significantly higher operating profit margins but with slightly slower revenue growth, generates lower earnings growth. Its dividend yield is significantly ahead of the group. Key to closing the 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 82% in FY20) and a strong balance sheet with no debt.

Exhibit 1: Financial summary

£'000s

2016

2017

2018

2019

2020e

2021e

2022e

2023e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

158,712

160,354

149,710

159,507

159,453

164,139

172,741

182,448

Cost of Sales

(14,151)

(14,674)

(14,236)

(15,407)

(20,335)

(15,387)

(16,751)

(18,549)

Gross Profit

144,561

145,680

135,474

144,100

139,118

148,752

155,990

163,899

EBITDA

 

 

52,288

49,222

48,919

55,632

53,536

55,740

59,069

61,938

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

38,897

34,895

32,991

40,794

43,020

43,440

46,169

49,038

EMIS adjusted operating profit

 

 

38,753

37,406

35,890

39,273

39,266

41,100

44,429

47,298

Amortisation of acquired intangibles

(6,639)

(6,717)

(6,202)

(7,317)

(6,824)

(5,557)

(3,812)

(3,268)

Exceptionals

(6,714)

(16,988)

1,657

(5,360)

1,802

0

0

0

Share-based payments

(473)

(550)

(766)

(1,290)

(1,440)

(1,440)

(1,440)

(1,440)

Operating Profit

25,071

10,640

27,680

26,827

36,558

36,443

40,918

44,330

Net Interest

(237)

(299)

(180)

(498)

(501)

(500)

(500)

(500)

Profit Before Tax (norm)

 

 

39,159

35,192

33,426

41,038

43,377

43,798

46,527

49,396

Profit Before Tax (FRS 3)

 

 

25,333

10,937

28,115

27,071

36,915

36,801

41,276

44,688

Tax

(5,208)

(2,074)

(5,355)

(5,022)

(6,794)

(6,992)

(7,842)

(10,502)

Profit After Tax (norm)

32,175

27,989

26,447

33,697

35,658

35,476

37,687

40,011

Profit After Tax (FRS3)

20,125

8,863

22,760

22,049

30,121

29,809

33,433

34,186

Average Number of Shares Outstanding (m)

62.8

62.9

63.0

62.9

62.9

63.0

63.0

63.0

EPS - normalised & diluted (p)

 

 

49.4

43.1

40.4

53.5

56.4

56.2

59.7

63.3

EPS - EMIS adjusted & diluted (p)

 

 

49.2

47.0

45.0

51.1

50.4

53.2

57.4

57.7

EPS - FRS 3 (p)

 

 

30.4

12.8

36.1

36.0

48.1

47.3

53.1

54.3

Dividend (p)

23.4

25.8

28.4

31.2

32.0

34.0

35.0

36.0

Gross Margin (%)

91.1%

90.8%

90.5%

90.3%

87.2%

90.6%

90.3%

89.8%

EBITDA Margin (%)

32.9%

30.7%

32.7%

34.9%

33.6%

34.0%

34.2%

33.9%

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

24.5%

21.8%

22.0%

25.6%

27.0%

26.5%

26.7%

26.9%

BALANCE SHEET

Fixed Assets

 

 

133,292

122,979

117,920

101,089

105,518

101,319

98,765

96,756

Intangible Assets

110,953

100,844

96,807

82,345

85,295

80,238

76,326

72,959

Tangible Assets

22,187

22,037

21,000

18,399

19,870

19,870

20,370

20,870

Other fixed assets

152

98

113

345

353

1,211

2,069

2,927

Current Assets

 

 

46,088

56,900

53,107

67,278

87,170

91,659

108,099

126,598

Stocks

1,815

1,633

1,264

657

613

613

613

613

Debtors

39,970

40,148

36,223

33,047

29,993

33,727

35,495

37,489

Cash

4,303

13,991

15,620

31,099

53,008

53,763

68,435

84,939

Current Liabilities

 

 

(56,158)

(65,131)

(60,169)

(55,700)

(63,370)

(55,645)

(58,509)

(61,741)

Creditors

(51,425)

(65,131)

(60,169)

(55,060)

(62,380)

(54,655)

(57,519)

(60,751)

Lease liabilities

0

0

0

(640)

(990)

(990)

(990)

(990)

Short term borrowings

(4,733)

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(9,080)

(6,734)

(8,199)

(8,469)

(10,180)

(8,340)

(6,831)

(7,436)

Long term borrowings

0

0

0

0

0

0

0

0

Lease liabilities

0

0

0

(3,294)

(5,891)

(5,380)

(4,869)

(4,358)

Other long term liabilities

(9,080)

(6,734)

(8,199)

(5,175)

(4,289)

(2,960)

(1,962)

(3,078)

Net Assets

 

 

114,142

108,014

102,659

104,198

119,138

128,994

141,525

154,176

CASH FLOW

Operating Cash Flow

 

 

43,657

48,834

49,873

50,059

64,138

46,280

60,166

63,176

Net Interest

(324)

(356)

(214)

(93)

(54)

(500)

(500)

(500)

Tax

(7,655)

(8,139)

(5,830)

(4,466)

(11,684)

(8,322)

(8,840)

(9,385)

Capex

(12,084)

(11,342)

(12,767)

(13,119)

(9,491)

(11,800)

(12,300)

(12,300)

Acquisitions/disposals

(1,790)

329

(9,269)

5,152

(953)

(2,000)

0

0

Financing

881

571

906

(2,369)

1,324

(500)

(500)

(500)

Dividends

(14,006)

(15,476)

(21,070)

(18,745)

(19,860)

(20,893)

(21,842)

(22,475)

Net Cash Flow

8,679

14,421

1,629

16,419

23,420

2,266

16,184

18,015

Opening net debt/(cash)

 

 

9,109

430

(13,991)

(15,620)

(31,099)

(53,008)

(53,763)

(68,435)

Finance leases initiated

0

0

0

(940)

(1,511)

(1,511)

(1,511)

(1,511)

Other

0

0

0

0

0

(0)

0

0

Closing net debt/(cash)

 

 

430

(13,991)

(15,620)

(31,099)

(53,008)

(53,763)

(68,435)

(84,939)

Source: EMIS, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by EMIS and prepared and issued by Edison, in consideration of a fee payable by EMIS. 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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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 and prepared and issued by Edison, in consideration of a fee payable by EMIS. 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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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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