Solid H1; on track to meet FY18 expectations

EMIS Group 17 July 2018 Update
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EMIS Group

Solid H1; on track to meet FY18 expectations

Trading update

Software & comp services

17 July 2018

Price

865p

Market cap

£548m

Net cash (£m) at end H118

32.3

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.0)

2.9

(4.1)

Rel (local)

(3.4)

(2.4)

(7.6)

52-week high/low

1,017p

705p

Business description

EMIS is a clinical software supplier to the primary, community and acute care markets in the UK, as well as providing software to the community pharmacy and specialist ophthalmology markets. Its Patient business provides medical and well-being information as well as transactional services to patients.

Next events

H118 results

31 August

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

EMIS Group is a research client of Edison Investment Research Limited

In H118, EMIS traded in line with management’s expectations and generated year-on-year revenue growth. All divisions saw solid performance and management expects to meet FY18 expectations. The company continues to work on developing longer-term growth plans; these will be key to reinvigorating revenue and earnings growth, which in our view will be the trigger to closing the valuation discount versus peers.

Year end

Revenue (£m)

PBT*
(£m)

Dil EPS*
(p)

EMIS adj. dil. EPS** (p)

DPS
(p)

P/E
(x)

12/17

160.4

35.2

43.1

47.0

25.8

20.1

12/18e

165.7

36.7

45.0

46.5

26.8

19.2

12/19e

171.6

39.8

48.7

48.4

27.8

17.8

12/20e

178.5

42.9

53.1

53.2

29.0

16.3

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.

H1 trading in line; solid divisional performance

Management confirmed that trading in H118 was in line with expectations, with revenues ahead on a year-on-year basis, and unchanged expectations for FY18. The Primary Care business maintained its market share and is making progress in resolving the service level issues first announced in January. The Community business won additional contracts in H1 and the Acute business saw an improved performance in the period. The Community Pharmacy roll-out of ProScript Connect is on track and the Specialist & Care business maintained the better performance already seen in H217. Net cash grew to £32.3m by the end of H118, up from £10.5m a year ago and £14.0m at the end of FY17.

Working on longer-term growth plans

The company has ambitious plans to build a UK marketplace for healthcare, centred around its Patient business line. The upgraded Patient Access app was launched in May, which after some initial issues is now working well. The patient.info service continues to grow its audience and is increasing its focus on advertising sales. Management has been developing detailed plans for longer-term growth of the group as a whole, and we expect to hear more on this when the company reports interims on 31 August.

Valuation: Revenue and earnings growth key

Since the low of 705p reached in February, EMIS has gained 23% and is now trading only 10% below the level it was at before disclosing the service level issues in January. The company is now trading on 19.2x FY18e EPS, at a 28% discount to its peer group median. Although EMIS is more profitable than its peers, the forecast decline in earnings in FY18 is weighing on the valuation. Evidence of earnings growth resumption will be key to share price upside – in the shorter term, this could include positive news on the Scottish and English primary care procurements, and in the longer term, evidence that the investment in Patient is paying off. Strong cash generation underpins the 3% dividend yield.

Exhibit 1: Financial summary

£'000s

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

137,639

155,898

158,712

160,354

165,748

171,567

178,455

Cost of Sales

(12,782)

(12,955)

(14,151)

(14,674)

(14,984)

(15,784)

(16,668)

Gross Profit

124,857

142,943

144,561

145,680

150,765

155,783

161,788

EBITDA

 

 

47,645

51,964

52,288

49,222

50,562

52,532

55,901

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

34,787

37,123

38,897

34,895

36,200

39,230

42,263

EMIS adjusted operating profit

 

 

32,639

36,553

38,753

37,406

37,156

39,028

42,304

Amortisation of acquired intangibles

(6,269)

(6,509)

(6,639)

(6,717)

(6,718)

(6,718)

(6,479)

Exceptionals

873

(18,500)

(6,714)

(16,988)

0

0

0

Share-based payments

(270)

(684)

(473)

(550)

(1,000)

(1,000)

(1,000)

Operating Profit

29,121

11,430

25,071

10,640

28,482

31,512

34,784

Net Interest

(543)

(449)

(237)

(299)

(50)

0

0

Profit Before Tax (norm)

 

 

34,206

36,625

39,159

35,192

36,746

39,826

42,859

Profit Before Tax (FRS 3)

 

 

28,540

10,932

25,333

10,937

29,028

32,108

35,380

Tax

(5,719)

(5,558)

(5,208)

(2,074)

(5,806)

(6,422)

(6,722)

Profit After Tax (norm)

27,617

29,801

32,175

27,989

29,397

31,861

34,715

Profit After Tax (FRS3)

22,821

5,374

20,125

8,863

23,222

25,686

28,658

Average Number of Shares Outstanding (m)

62.8

62.7

62.8

62.9

62.9

62.9

62.9

EPS - normalised & diluted (p)

 

 

42.8

46.0

49.4

43.1

45.0

48.7

53.1

EPS - EMIS adjusted & diluted (p)

 

 

39.4

45.1

49.2

47.0

46.5

48.4

53.2

EPS - FRS 3 (p)

 

 

35.3

7.2

30.4

12.8

35.3

39.0

43.6

Dividend (p)

18.4

21.2

23.4

25.8

26.8

27.8

29.0

Gross Margin (%)

90.7%

91.7%

91.1%

90.8%

91.0%

90.8%

90.7%

EBITDA Margin (%)

34.6%

33.3%

32.9%

30.7%

30.5%

30.6%

31.3%

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

25.3%

23.8%

24.5%

21.8%

21.8%

22.9%

23.7%

BALANCE SHEET

Fixed Assets

 

 

166,415

143,546

133,292

122,979

114,899

107,879

100,762

Intangible Assets

139,397

121,383

110,953

100,844

91,764

83,844

75,927

Tangible Assets

24,313

22,032

22,187

22,037

23,037

23,937

24,737

Other fixed assets

2,705

131

152

98

98

98

98

Current Assets

 

 

37,221

39,800

46,088

56,900

60,639

76,479

95,173

Stocks

1,550

1,206

1,815

1,633

1,633

1,633

1,633

Debtors

28,732

33,893

39,970

40,148

41,324

42,774

44,492

Cash

6,939

4,701

4,303

13,991

17,682

32,072

49,049

Current Liabilities

 

 

(67,665)

(63,819)

(56,158)

(65,131)

(55,758)

(57,715)

(60,032)

Creditors

(54,763)

(51,960)

(51,425)

(65,131)

(55,758)

(57,715)

(60,032)

Short term borrowings

(12,902)

(11,859)

(4,733)

0

0

0

0

Long Term Liabilities

 

 

(21,063)

(12,481)

(9,080)

(6,734)

(5,190)

(3,647)

(2,226)

Long term borrowings

(5,854)

(1,951)

0

0

0

0

0

Other long term liabilities

(15,209)

(10,530)

(9,080)

(6,734)

(5,190)

(3,647)

(2,226)

Net Assets

 

 

114,908

107,046

114,142

108,014

114,589

122,996

133,677

CASH FLOW

Operating Cash Flow

 

 

44,856

42,711

43,657

48,834

40,013

53,039

56,500

Net Interest

(445)

(422)

(324)

(356)

50

100

100

Tax

(5,247)

(6,896)

(7,655)

(8,139)

(6,221)

(7,965)

(8,143)

Capex

(15,161)

(14,058)

(12,084)

(11,342)

(13,000)

(13,000)

(13,000)

Acquisitions/disposals

(9,959)

(4,587)

(1,790)

329

0

0

0

Financing

(1,578)

492

881

571

(500)

(500)

(500)

Dividends

(10,792)

(14,532)

(14,006)

(15,476)

(16,651)

(17,284)

(17,980)

Net Cash Flow

1,674

2,708

8,679

14,421

3,691

14,389

16,977

Opening net debt/(cash)

 

 

13,491

11,817

9,109

430

(13,991)

(17,682)

(32,072)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

11,817

9,109

430

(13,991)

(17,682)

(32,072)

(49,049)

Source: EMIS, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EMIS Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EMIS Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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