Steady progress

EMIS Group 19 July 2017 Update
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EMIS Group

Steady progress

Trading update

Software & comp services

19 July 2017

Price

931.5p

Market cap

£590m

Net cash (£m) at end H117

10.5

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.4)

3.7

(2.1)

Rel (local)

0.6

0.6

(12.3)

52-week high/low

1050.0p

807.0p

Business description

EMIS is a clinical software supplier to the primary care market in the UK (supplying over 50% of UK GP practices), a software supplier to UK pharmacies, and through several acquisitions also supplies specialist and acute care software.

Next events

H117 results

1 September 2017

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS Group is a research client of Edison Investment Research Limited

In H117 EMIS traded in line with expectations. Primary Care, Community Care and Community Pharmacy are progressing well whereas Acute is still seeing budgetary pressure. The development of the Patient business is underway and likely to cost less than originally expected. Cash generation is on track and management expectations for the full year are unchanged. We make no change to our underlying forecasts; interim results are due on 1 September.

Year
end

Revenue (£m)

PBT*
(£m)

Dil. EPS*
(p)

EMIS adj. dil. EPS** (p)

DPS
(p)

P/E
(x)

Yield

(%)

12/15

155.9

36.6

46.0

45.1

21.2

20.3

2.3

12/16

158.7

39.2

49.4

49.2

23.4

18.9

2.5

12/17e

166.2

37.3

46.0

46.8

24.4

20.3

2.6

12/18e

175.4

40.2

49.4

51.1

25.4

18.9

2.7

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.

H1 trading in line

Trading in H117 was in line with management’s expectations with H1 revenues slightly ahead year-on-year. The company maintained market share in Primary Care; the roll out of EMIS Web is underway in Northern Ireland and procurement for EMIS Web has started in Scotland. CCMH won two new contracts in H1. Since Andy Thorburn joined as CEO in May, the existing internal reorganisation programme has been expanded. This should generate cost savings in H2 to offset weakness in the Acute business. In Specialist & Care, five new diabetic screening contracts (won in 2016) were implemented, and notice was given on an unprofitable contract, which should expire in H218. Plans to develop the Patient business are underway, and the company now expects to be able to carry out development work more cost efficiently than previously budgeted.

Strong balance sheet; outlook unchanged

EMIS ended H117 with net cash of £10.5m, versus net debt of £0.4m at the end of FY16. The company also negotiated a three-year £60m revolving credit facility with Barclays and Lloyds providing resources should any acquisition opportunities arise. Management remains confident in the outlook for the business and expectations for the full year are unchanged. Our estimates are unchanged bar a £1m increase in FY17 exceptional charges to reflect the expanded reorganisation plan.

Valuation: Trading at a discount

EMIS is trading on an FY17e P/E of 20.3x, which is at a c 20% discount to its peer group. Although EMIS is more profitable than its peers, the forecast decline in earnings in FY17 is weighing on the valuation. Evidence of a resumption in earnings growth will be key to share price upside – in the short term, this could include improvement in Acute and Specialist Care, and in the longer term, evidence that the investment in Patient is paying off. We believe the NHS’s digital agenda continues to support long-term growth for EMIS. Strong cash generation underpins the nearly 3% dividend yield.

Exhibit 1: Financial summary

£'000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

86,333

105,542

137,639

155,898

158,712

166,168

175,354

Cost of Sales

(10,891)

(11,780)

(12,782)

(12,955)

(14,151)

(16,534)

(18,237)

Gross Profit

75,442

93,762

124,857

142,943

144,561

149,634

157,117

EBITDA

 

 

33,178

38,885

47,645

51,964

52,288

50,473

54,007

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

27,619

30,482

34,787

37,123

38,897

36,960

39,794

EMIS adjusted operating profit

 

 

22,910

26,260

32,639

36,553

38,753

37,496

40,854

Amortisation of acquired intangibles

(2,983)

(4,198)

(6,269)

(6,509)

(6,639)

(6,697)

(6,697)

Exceptionals

(435)

(1,144)

873

(18,500)

(6,714)

(4,000)

0

Share-based payments

(90)

(195)

(270)

(684)

(473)

(1,000)

(1,000)

Operating Profit

24,111

24,945

29,121

11,430

25,071

25,263

32,097

Net Interest

(76)

(242)

(543)

(449)

(237)

(150)

(50)

Profit Before Tax (norm)

 

 

27,567

30,172

34,206

36,625

39,159

37,309

40,243

Profit Before Tax (FRS 3)

 

 

24,059

24,635

28,540

10,932

25,333

25,612

32,546

Tax

(4,625)

(4,706)

(5,719)

(5,558)

(5,208)

(5,251)

(6,672)

Profit After Tax (norm)

23,191

25,179

27,617

29,801

32,175

29,661

31,993

Profit After Tax (FRS3)

19,434

19,929

22,821

5,374

20,125

20,362

25,874

Average Number of Shares Outstanding (m)

58.2

59.4

62.8

62.7

62.8

62.8

62.8

EPS - normalised & diluted (p)

 

 

39.0

41.4

42.8

46.0

49.4

46.0

49.4

EPS - EMIS adjusted & diluted (p)

 

 

30.7

34.0

39.4

45.1

49.2

46.8

51.1

EPS - FRS 3 (p)

 

 

32.5

32.6

35.3

7.2

30.4

31.3

39.8

Dividend (p)

14.2

16.0

18.4

21.2

23.4

24.4

25.4

Gross Margin (%)

87.4%

88.8%

90.7%

91.7%

91.1%

90.1%

89.6%

EBITDA Margin (%)

38.4%

36.8%

34.6%

33.3%

32.9%

30.4%

30.8%

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

32.0%

28.9%

25.3%

23.8%

24.5%

22.2%

22.7%

BALANCE SHEET

Fixed Assets

 

 

77,673

153,838

166,415

143,546

133,292

125,082

116,172

Intangible Assets

52,789

126,468

139,397

121,383

110,953

101,843

92,233

Tangible Assets

22,144

24,610

24,313

22,032

22,187

23,087

23,787

Other fixed assets

2,740

2,760

2,705

131

152

152

152

Current Assets

 

 

27,538

27,046

37,221

39,800

46,088

55,732

74,984

Stocks

1,243

1,431

1,550

1,206

1,815

1,815

1,815

Debtors

15,188

21,448

28,732

33,893

39,970

41,883

44,199

Cash

11,107

4,167

6,939

4,701

4,303

12,033

28,970

Current Liabilities

 

 

(30,598)

(54,530)

(67,665)

(63,819)

(56,158)

(54,658)

(56,367)

Creditors

(30,202)

(46,628)

(54,763)

(51,960)

(51,425)

(50,925)

(53,634)

Short term borrowings

(396)

(7,902)

(12,902)

(11,859)

(4,733)

(3,733)

(2,733)

Long Term Liabilities

 

 

(10,548)

(22,231)

(21,063)

(12,481)

(9,080)

(9,080)

(9,080)

Long term borrowings

(3,000)

(9,756)

(5,854)

(1,951)

0

0

0

Other long term liabilities

(7,548)

(12,475)

(15,209)

(10,530)

(9,080)

(9,080)

(9,080)

Net Assets

 

 

64,065

104,123

114,908

107,046

114,142

117,076

125,709

CASH FLOW

Operating Cash Flow

 

 

32,732

38,725

44,856

42,711

43,657

44,060

54,401

Net Interest

(60)

(580)

(445)

(422)

(324)

(50)

50

Tax

(4,566)

(5,073)

(5,247)

(6,896)

(7,655)

(7,648)

(8,250)

Capex

(18,342)

(15,025)

(15,161)

(14,058)

(12,084)

(12,000)

(12,000)

Acquisitions/disposals

(512)

(57,315)

(9,959)

(4,587)

(1,790)

0

0

Financing

(1,816)

27,212

(1,578)

492

881

(500)

(500)

Dividends

(7,735)

(9,146)

(10,792)

(14,532)

(14,006)

(15,131)

(15,764)

Net Cash Flow

(299)

(21,202)

1,674

2,708

8,679

8,730

17,937

Opening net debt/(cash)

 

 

(8,026)

(7,711)

13,491

11,817

9,109

430

(8,300)

HP finance leases initiated

0

0

0

0

0

0

0

Other

(16)

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(7,711)

13,491

11,817

9,109

430

(8,300)

(26,237)

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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 12, 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 12, 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 and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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