Streamlined business on track

EMIS Group 18 July 2019 Update
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EMIS Group

Streamlined business on track

Trading update

Software & comp services

18 July 2019

Price

1,194p

Market cap

£756m

Net cash (£m) at end H119

26.7

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.7

6.2

38.3

Rel (local)

(1.2)

5.2

40.1

52-week high/low

1242p

864p

Business description

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

Next events

H119 results

30 August

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS Group is a research client of Edison Investment Research Limited

EMIS traded in line with management’s expectations during H119 and is on track for the full year. The outcome of the GP IT Futures procurement process is the main short-term catalyst, with a decision likely in September. Our underlying forecasts are unchanged and we have shifted the Specialist & Care disposal into discontinued operations.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

EMIS adj. dil. EPS** (p)

DPS
(p)

P/E
(x)

12/17

160.4

35.2

43.1

47.0

25.8

27.7

12/18***

149.7

33.4

40.3

44.9

28.4

29.6

12/19e***

157.6

40.6

52.0

49.1

30.0

23.0

12/20e

165.1

44.3

56.8

54.0

32.0

21.0

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. ***Excludes discontinued operations.

H1 trading in line

Trading for H1 was in line with management’s expectations, with revenues up year-on-year, and expectations are unchanged for the full year. EMIS noted that the GP IT Futures renewal process has moved into the formal procurement phase, with successful bidders expected to be announced in September. The Patient business has started the controlled roll-out of new functionality within the Patient Access app. As previously indicated, headcount is being managed to increase development resources for EMIS-X while reducing headcount elsewhere in the group. Net cash was £26.7m at the end of H1, reflecting typically strong H1 working capital inflows as well as proceeds from the disposal of the Specialist & Care business.

New divisional reporting disclosed

The company disclosed the new divisional reporting structure that will kick in with H119 results. The current four divisions will become two: EMIS Health, which will include all NHS-funded business (primary, community, acute care) and EMIS Enterprise, which will include revenues predominantly from private sector sources (medicines management, Patient, overseas and partner business). We make no change to underlying forecasts but have shifted the recently sold Specialist & Care business into discontinued operations. This has no impact at the reported EPS level but reduces normalised/adjusted EPS by 0.9% in FY19.

Valuation: IT Futures decision the next catalyst

The share price has gained 32% year to date, but EMIS continues to trade at a small discount to peers on a P/E basis. Uncertainty over the outcome of GP IT Futures is likely to weigh on the share price in the short term (a decision is expected in September); while we think it highly unlikely that EMIS would not be selected for the framework, there is still uncertainty around pricing, technical requirements and the future competitive environment. In the longer term, evidence that the company is making progress towards the targets set at last year’s capital markets day will be the key catalyst for share price upside.

Changes to forecasts

Exhibit 1: Changes to estimates

£'000s

FY19e

FY19e

Change

y-o-y

FY20e

FY20e

Change

y-o-y

FY21e

FY21e

Change

y-o-y

Old

New

%

%

Old

New

%

%

Old

New

%

%

Revenues

162,849

157,551

-3.3%

5.2%

165,112

165,112

0.0%

4.8%

172,947

172,947

0.0%

4.7%

Normalised operating profit

40,487

40,141

-0.9%

21.7%

43,838

43,838

0.0%

9.2%

46,271

46,271

0.0%

5.6%

Normalised operating margin

24.9%

25.5%

0.6%

26.6%

26.6%

0.0%

26.8%

26.8%

0.0%

Reported operating profit

32,256

32,075

-0.6%

15.9%

36,010

36,010

0.0%

12.3%

39,681

39,681

0.0%

10.2%

EMIS adjusted operating profit

38,633

38,280

-0.9%

6.7%

42,064

42,064

0.0%

9.9%

45,648

45,648

0.0%

8.5%

Adjusted operating margin

23.7%

24.3%

0.6%

25.5%

25.5%

0.0%

26.4%

26.4%

0.0%

Normalised EPS (p)

52.5

52.0

-0.9%

29.1%

56.8

56.8

0.0%

9.1%

59.9

59.9

0.0%

5.5%

Reported EPS (p)

42.0

42.0

0.0%

16.6%

46.9

46.9

0.0%

11.5%

51.6

51.6

0.0%

10.1%

EMIS adjusted EPS (p)

49.5

49.1

-0.9%

9.3%

54.0

54.0

0.0%

10.0%

58.9

58.9

0.0%

9.2%

Dividend per share (p)

30.0

30.0

0.0%

5.6%

32.0

32.0

0.0%

6.7%

34.0

34.0

0.0%

6.3%

Net cash

29,852

29,744

-0.4%

125.7%

41,183

42,066

2.1%

41.4%

59,199

60,367

2.0%

43.5%

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2014

2015

2016

2017

2018

2019e

2020e

2021e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

137,639

155,898

158,712

160,354

149,710

157,551

165,112

172,947

Cost of Sales

(12,782)

(12,955)

(14,151)

(14,674)

(11,640)

(13,920)

(14,933)

(15,998)

Gross Profit

124,857

142,943

144,561

145,680

138,070

143,632

150,180

156,950

EBITDA

 

 

47,645

51,964

52,288

49,222

48,919

54,285

58,166

61,044

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

34,787

37,123

38,897

34,895

32,991

40,141

43,838

46,271

EMIS adjusted operating profit

 

 

32,639

36,553

38,753

37,406

35,890

38,280

42,064

45,648

Amortisation of acquired intangibles

(6,269)

(6,509)

(6,639)

(6,717)

(6,202)

(7,066)

(6,827)

(5,590)

Exceptionals

873

(18,500)

(6,714)

(16,988)

1,657

0

0

0

Share-based payments

(270)

(684)

(473)

(550)

(766)

(1,000)

(1,000)

(1,000)

Operating Profit

29,121

11,430

25,071

10,640

27,680

32,075

36,010

39,681

Net Interest

(543)

(449)

(237)

(299)

(180)

(200)

(200)

(200)

Profit Before Tax (norm)

 

 

34,206

36,625

39,159

35,192

33,426

40,570

44,274

46,707

Profit Before Tax (FRS 3)

 

 

28,540

10,932

25,333

10,937

28,115

32,504

36,446

40,117

Tax

(5,719)

(5,558)

(5,208)

(2,074)

(5,346)

(6,176)

(6,925)

(7,622)

Profit After Tax (norm)

27,617

29,801

32,175

27,989

26,343

32,862

35,862

37,832

Profit After Tax (FRS3)

22,821

5,374

20,125

8,863

22,769

26,328

29,522

32,495

Average Number of Shares Outstanding (m)

62.8

62.7

62.8

62.9

63.0

63.0

63.0

63.0

EPS - normalised & diluted (p)

 

 

42.8

46.0

49.4

43.1

40.3

52.0

56.8

59.9

EPS - EMIS adjusted & diluted (p)

 

 

39.4

45.1

49.2

47.0

44.9

49.1

54.0

58.9

EPS - FRS 3 (p)

 

 

35.3

7.2

30.4

12.8

36.1

42.0

46.9

51.6

Dividend (p)

18.4

21.2

23.4

25.8

28.4

30.0

32.0

34.0

Gross Margin (%)

90.7%

91.7%

91.1%

90.8%

92.2%

91.2%

91.0%

90.8%

EBITDA Margin (%)

34.6%

33.3%

32.9%

30.7%

32.7%

34.5%

35.2%

35.3%

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

25.3%

23.8%

24.5%

21.8%

22.0%

25.5%

26.6%

26.8%

BALANCE SHEET

Fixed Assets

 

 

166,415

143,546

133,292

122,979

117,920

107,374

100,555

93,828

Intangible Assets

139,397

121,383

110,953

100,844

96,807

83,532

77,077

70,714

Tangible Assets

24,313

22,032

22,187

22,037

21,000

23,100

22,100

21,100

Other fixed assets

2,705

131

152

98

113

742

1,378

2,014

Current Assets

 

 

37,221

39,800

46,088

56,900

53,107

70,767

85,953

105,183

Stocks

1,550

1,206

1,815

1,633

1,264

1,264

1,264

1,264

Debtors

28,732

33,893

39,970

40,148

36,223

36,258

37,998

39,802

Cash

6,939

4,701

4,303

13,991

15,620

33,244

44,691

62,117

Current Liabilities

 

 

(67,665)

(63,819)

(56,158)

(65,131)

(60,169)

(63,943)

(66,931)

(69,228)

Creditors

(54,763)

(51,960)

(51,425)

(65,131)

(60,169)

(63,068)

(66,056)

(68,353)

Short term borrowings

(12,902)

(11,859)

(4,733)

0

0

(875)

(875)

(875)

Long Term Liabilities

 

 

(21,063)

(12,481)

(9,080)

(6,734)

(8,199)

(8,804)

(3,788)

(1,892)

Long term borrowings

(5,854)

(1,951)

0

0

0

(2,625)

(1,750)

(875)

Other long term liabilities

(15,209)

(10,530)

(9,080)

(6,734)

(8,199)

(6,179)

(2,038)

(1,017)

Net Assets

 

 

114,908

107,046

114,142

108,014

102,659

105,394

115,789

127,891

CASH FLOW

Operating Cash Flow

 

 

44,856

42,711

43,657

48,834

47,431

57,349

59,414

62,337

Net Interest

(445)

(422)

(324)

(356)

(214)

(200)

(200)

(200)

Tax

(5,247)

(6,896)

(7,655)

(8,139)

(5,830)

(7,396)

(12,266)

(8,643)

Capex

(15,161)

(14,058)

(12,084)

(11,342)

(12,767)

(13,700)

(13,700)

(13,000)

Acquisitions/disposals

(9,959)

(4,587)

(1,790)

329

(9,269)

5,500

(800)

(800)

Financing

(1,578)

492

881

571

906

(3,000)

(500)

(500)

Dividends

(10,792)

(14,532)

(14,006)

(15,476)

(21,070)

(18,487)

(19,626)

(20,893)

Net Cash Flow

1,674

2,708

8,679

14,421

(813)

20,066

12,322

18,301

Opening net debt/(cash)

 

 

13,491

11,817

9,109

430

(13,991)

(13,178)

(29,744)

(42,066)

HP finance leases initiated

0

0

0

0

0

(3,500)

0

0

Other

0

0

0

0

0

0

0

(0)

Closing net debt/(cash)

 

 

11,817

9,109

430

(13,991)

(13,178)

(29,744)

(42,066)

(60,367)

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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

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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

1,185 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

1,185 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

1,185 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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