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Strong FY21 drives upgrades

EMIS Group 20 January 2022 Update
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EMIS Group

Strong FY21 drives upgrades

FY21 trading update

Software & comp services

20 January 2022

Price

1,264p

Market cap

£800m

Net cash (£m) at end FY21

64.0

Shares in issue

63.3m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.9)

(9.1)

(14.9)

Rel (local)

(4.3)

(12.4)

2.0

52-week high/low

1460p

1038p

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

FY21 results

17 March 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS Group is a research client of Edison Investment Research Limited

EMIS’s FY21 revenue and operating profit came in ahead of the top end of consensus, reflecting a year of growth for EMIS Enterprise and more normal trading in EMIS Health after a year helping the NHS to deal with the pandemic. Post year-end, the company bolstered its analytics business with the acquisition of GP practice business intelligence tools provider Edenbridge Healthcare for £4m. We have upgraded our normalised diluted EPS forecasts by 2% in FY21 and 1% in FY22 and FY23.

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

23.6

12/20

159.5

43.4

56.4

50.4

32.0

22.4

12/21e

166.8

43.0

54.8

53.9

35.2

23.1

12/22e

174.9

47.2

60.2

57.8

36.0

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.

FY21 results ahead; small analytics acquisition

EMIS reported that FY21 revenue and adjusted operating profit were ahead of FY20 and slightly above the top end of consensus (which stood at £166.1m and £41.6m respectively). Business in the EMIS Health division normalised in the year compared to COVID-focused trading in FY20. The EMIS Enterprise business continues to drive double-digit growth in patient-facing services, analytics and pharmacy. Post year-end, the company acquired business intelligence tools software provider, Edenbridge Healthcare, for £4m in cash (with a further £6m in contingent consideration). Edenbridge's software provides real-time insight to support GP practice access, efficiency, transformation and workforce planning, and will join EMIS Enterprise’s analytics business. EMIS closed the year with net cash of £64m and secured a £60m replacement three-year revolving credit facility, highlighting the availability of cash for further M&A.

Modest EPS upgrades

We have revised our forecasts to reflect stronger than expected FY21 performance and the Edenbridge acquisition. We assume that the high year-end net cash balance (£9m higher than our forecast) resulted from good working capital management. Our normalised diluted EPS forecasts increase by 2.1% in FY21, 1.2% in FY22 and 1.3% in FY23.

Valuation: Earnings growth to drive upside

Compared to a global group of healthcare software peers, EMIS trades at a discount on all profitability 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 79% in H121) and a strong balance sheet with no debt.

Changes to forecasts

Exhibit 1: Changes to forecasts

£'000s

FY21e

FY22e

FY23e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

164,113

166,813

1.6%

4.6%

172,741

174,941

1.3%

4.9%

182,448

184,648

1.2%

5.5%

Normalised operating profit

41,792

42,662

2.1%

(0.8%)

46,329

46,881

1.2%

9.9%

49,198

49,858

1.3%

6.3%

Normalised operating margin

25.5%

25.6%

0.1%

26.8%

26.8%

(0.0%)

27.0%

27.0%

0.0%

Reported operating profit

33,636

34,507

2.6%

(3.5%)

40,429

40,981

1.4%

18.8%

44,330

44,990

1.5%

9.8%

EMIS adjusted operating profit

41,092

41,962

2.1%

6.9%

44,429

44,981

1.2%

7.2%

47,298

47,958

1.4%

6.6%

Adjusted operating margin

25.0%

25.2%

0.1%

25.7%

25.7%

(0.0%)

25.9%

26.0%

0.0%

Normalised EPS - p

53.7

54.8

2.1%

(2.7%)

59.5

60.2

1.2%

9.8%

63.1

64.0

1.3%

6.3%

Reported EPS - p

43.7

44.8

2.6%

(6.8%)

52.5

53.2

1.4%

18.6%

54.3

55.1

1.5%

3.6%

EMIS adjusted EPS - p

52.8

53.9

2.1%

6.9%

57.1

57.8

1.2%

7.1%

57.3

58.1

1.4%

0.6%

Dividend per share - p

35.2

35.2

0.0%

10.0%

36.0

36.0

0.0%

2.3%

37.0

37.0

0.0%

2.8%

Net cash/(debt)

55,322

63,972

15.6%

20.7%

68,045

70,086

3.0%

9.6%

84,175

87,004

3.4%

24.1%

Source: Edison Investment Research

Exhibit 2: Financial summary

£'000s

2016

2017

2018

2019

2020

2021e

2022e

2023e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

158,712

160,354

149,710

159,507

159,453

166,813

174,941

184,648

Cost of Sales

(14,151)

(14,674)

(14,236)

(15,407)

(20,335)

(15,757)

(17,191)

(18,989)

Gross Profit

144,561

145,680

135,474

144,100

139,118

151,056

157,750

165,659

EBITDA

 

 

52,288

49,222

48,919

55,632

53,536

53,762

59,781

62,758

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

38,897

34,895

32,991

40,794

43,020

42,662

46,881

49,858

EMIS adjusted operating profit

 

 

38,753

37,406

35,890

39,273

39,266

41,962

44,981

47,958

Amortisation of acquired intangibles

(6,639)

(6,717)

(6,202)

(7,317)

(6,824)

(6,555)

(4,301)

(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)

(1,600)

(1,600)

(1,600)

Operating Profit

25,071

10,640

27,680

26,827

36,558

34,507

40,981

44,990

Net Interest

(237)

(299)

(180)

(498)

(501)

(500)

(500)

(500)

Profit Before Tax (norm)

 

 

39,159

35,192

33,426

41,038

43,377

43,020

47,239

50,216

Profit Before Tax (FRS 3)

 

 

25,333

10,937

28,115

27,071

36,915

34,865

41,339

45,348

Tax

(5,208)

(2,074)

(5,355)

(5,022)

(6,794)

(6,624)

(7,854)

(10,657)

Profit After Tax (norm)

32,175

27,989

26,447

33,697

35,658

34,846

38,264

40,675

Profit After Tax (FRS3)

20,125

8,863

22,760

22,049

30,121

28,240

33,484

34,691

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

54.8

60.2

64.0

EPS - EMIS adjusted & diluted (p)

 

 

49.2

47.0

45.0

51.1

50.4

53.9

57.8

58.1

EPS - FRS 3 (p)

 

 

30.4

12.8

36.1

36.0

48.1

44.8

53.2

55.1

Dividend (p)

23.4

25.8

28.4

31.2

32.0

35.2

36.0

37.0

Gross Margin (%)

91.1%

90.8%

90.5%

90.3%

87.2%

90.6%

90.2%

89.7%

EBITDA Margin (%)

32.9%

30.7%

32.7%

34.9%

33.6%

32.2%

34.2%

34.0%

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

24.5%

21.8%

22.0%

25.6%

27.0%

25.6%

26.8%

27.0%

BALANCE SHEET

Fixed Assets

 

 

133,292

122,979

117,920

101,089

105,518

97,721

98,178

96,168

Intangible Assets

110,953

100,844

96,807

82,345

85,295

77,440

77,039

73,671

Tangible Assets

22,187

22,037

21,000

18,399

19,870

19,070

19,070

19,570

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

97,847

109,264

128,097

Stocks

1,815

1,633

1,264

657

613

613

613

613

Debtors

39,970

40,148

36,223

33,047

29,993

29,706

34,509

36,424

Cash

4,303

13,991

15,620

31,099

53,008

63,972

70,086

87,004

Current Liabilities

 

 

(56,158)

(65,131)

(60,169)

(55,700)

(63,370)

(63,743)

(64,703)

(68,238)

Creditors

(51,425)

(65,131)

(60,169)

(55,060)

(62,380)

(62,753)

(63,713)

(67,248)

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)

(6,119)

(4,987)

(5,592)

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)

(739)

(118)

(1,234)

Net Assets

 

 

114,142

108,014

102,659

104,198

119,138

125,706

137,752

150,434

CASH FLOW

Operating Cash Flow

 

 

43,657

48,834

49,873

50,059

64,138

54,421

57,939

64,378

Net Interest

(324)

(356)

(214)

(93)

(54)

(500)

(500)

(500)

Tax

(7,655)

(8,139)

(5,830)

(4,466)

(11,684)

(8,174)

(8,976)

(9,541)

Capex

(12,084)

(11,342)

(12,767)

(13,119)

(9,491)

(8,000)

(11,800)

(12,300)

Acquisitions/disposals

(1,790)

329

(9,269)

5,152

(953)

(2,000)

(6,000)

0

Financing

881

571

906

(2,369)

1,324

(2,000)

(500)

(500)

Dividends

(14,006)

(15,476)

(21,070)

(18,745)

(19,860)

(21,272)

(22,539)

(23,109)

Net Cash Flow

8,679

14,421

1,629

16,419

23,420

12,475

7,625

18,429

Opening net debt/(cash)

 

 

9,109

430

(13,991)

(15,620)

(31,099)

(53,008)

(63,972)

(70,086)

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)

(63,972)

(70,086)

(87,004)

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 £60,000 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 2022 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

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 Group and prepared and issued by Edison, in consideration of a fee payable by EMIS Group. Edison Investment Research standard fees are £60,000 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 2022 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

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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