Supporting the fight against COVID-19

EMIS Group 6 May 2020 Update
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EMIS Group

Supporting the fight against COVID-19

AGM update

Software & comp services

6 May 2020

Price

1,032p

Market cap

£653m

Net cash (£m) at end FY19

31.1

Shares in issue

63.0m

Free float

98%

Code

EMIS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.1)

(9.8)

(9.6)

Rel (local)

(10.2)

16.3

13.4

52-week high/low

1242p

813p

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 UK healthcare blockchain.

Next events

H120 trading update

July 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

EMIS is a research client of Edison Investment Research Limited

EMIS’s AGM update confirms the business is trading in line with expectations. As expected, new business is taking a back seat while the NHS concentrates on fighting the COVID-19 pandemic and EMIS has dedicated resources to helping frontline staff as well as supporting research efforts. As long as new business gradually improves through H2, EMIS anticipates meeting FY20 expectations; we maintain our estimates.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

EMIS adj. dil. EPS** (p)

DPS
(p)

P/E
(x)

12/18

149.7

33.4

40.4

45.0

28.4

25.5

12/19

159.5

41.0

53.5

51.1

31.2

19.3

12/20e

159.8

39.9

51.2

48.9

32.6

20.1

12/21e

169.8

43.7

56.0

54.7

34.0

18.4

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.

Providing support to the NHS

EMIS is focused on supporting its customer base in dealing with the COVID-19 pandemic. As well as meeting its regular service-level obligations, the company has created a dedicated team to support requests from NHS and community pharmacy customers for functionality changes and patient-related, data-driven insights. This includes involvement in the PRINCIPLE trial (run by the Nuffield Department of Primary Care at the University of Oxford and the Royal College of GPs) that is testing treatments for high-risk patients who have just started to show symptoms. The Patient Access service has seen the number of registered users grow to 10 million from 8.4 million at the end of FY19 and Patient’s coronavirus hub has been accessed 3.4m times by 2.6 million people.

Development plans unchanged; strong cash position

Trading in the year to date is in line with expectations: recurring revenues are on track while new business is lower than in FY19 with a focus on lower-margin hardware. EMIS is closely controlling costs but has no plans to furlough staff and will maintain its investment in EMIS-X. As long as new business gradually improves through H2, EMIS anticipates meeting market expectations for FY20. Net cash at the end of April was £40m with undrawn banking facilities of £60m available.

Valuation: Well supported

The stock is 27% higher than the trough in March and trades at a discount to peers on a P/E basis despite having superior profitability. It is further supported with a dividend yield of 3%. With a strong balance sheet, a high level of recurring revenues (c 80%) and technology that is likely to be in strong demand during and after the pandemic, we view this stock as one of the safer places to invest during this crisis.

Exhibit 1: Financial summary

£'000s

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

158,712

160,354

149,710

159,507

159,752

169,787

176,886

Cost of Sales

(14,151)

(14,674)

(14,236)

(15,407)

(15,695)

(17,314)

(18,466)

Gross Profit

144,561

145,680

135,474

144,100

144,058

152,473

158,420

EBITDA

 

 

52,288

49,222

48,919

55,632

53,269

56,839

60,450

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

38,897

34,895

32,991

40,794

39,505

43,111

48,261

EMIS adjusted operating profit

 

 

38,753

37,406

35,890

39,273

38,069

42,339

45,850

Amortisation of acquired intangibles

(6,639)

(6,717)

(6,202)

(7,317)

(6,827)

(5,090)

(3,536)

Exceptionals

(6,714)

(16,988)

1,657

(5,360)

0

0

0

Share-based payments

(473)

(550)

(766)

(1,290)

(1,300)

(1,300)

(1,300)

Operating Profit

25,071

10,640

27,680

26,827

31,378

36,721

43,425

Net Interest

(237)

(299)

(180)

(498)

(300)

(200)

(200)

Profit Before Tax (norm)

 

 

39,159

35,192

33,426

41,038

39,947

43,653

48,803

Profit Before Tax (FRS 3)

 

 

25,333

10,937

28,115

27,071

31,820

37,263

43,967

Tax

(5,208)

(2,074)

(5,355)

(5,022)

(6,046)

(7,080)

(8,354)

Profit After Tax (norm)

32,175

27,989

26,447

33,697

32,357

35,359

39,531

Profit After Tax (FRS3)

20,125

8,863

22,760

22,049

25,774

30,183

35,613

Average Number of Shares Outstanding (m)

62.8

62.9

63.0

62.9

63.0

63.0

63.0

EPS - normalised & diluted (p)

 

 

49.4

43.1

40.4

53.5

51.2

56.0

62.6

EPS - EMIS adjusted & diluted (p)

 

 

49.2

47.0

45.0

51.1

48.9

54.7

58.8

EPS - FRS 3 (p)

 

 

30.4

12.8

36.1

36.0

40.9

47.9

56.6

Dividend (p)

23.4

25.8

28.4

31.2

32.6

34.0

35.0

Gross Margin (%)

91.1%

90.8%

90.5%

90.3%

90.2%

89.8%

89.6%

EBITDA Margin (%)

32.9%

30.7%

32.7%

34.9%

33.3%

33.5%

34.2%

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

24.5%

21.8%

22.0%

25.6%

24.7%

25.4%

27.3%

BALANCE SHEET

Fixed Assets

 

 

133,292

122,979

117,920

101,089

100,740

94,965

92,281

Intangible Assets

110,953

100,844

96,807

82,345

82,254

76,237

73,311

Tangible Assets

22,187

22,037

21,000

18,399

17,399

16,899

16,399

Other fixed assets

152

98

113

345

1,087

1,829

2,571

Current Assets

 

 

46,088

56,900

53,107

67,278

78,388

94,524

112,510

Stocks

1,815

1,633

1,264

657

657

657

657

Debtors

39,970

40,148

36,223

33,047

35,890

39,074

40,708

Cash

4,303

13,991

15,620

31,099

39,841

52,793

69,145

Current Liabilities

 

 

(56,158)

(65,131)

(60,169)

(55,700)

(58,489)

(61,039)

(63,564)

Creditors

(51,425)

(65,131)

(60,169)

(55,060)

(57,849)

(60,399)

(62,924)

Lease liabilities

0

0

0

(640)

(640)

(640)

(640)

Short term borrowings

(4,733)

0

0

0

0

0

0

Long Term Liabilities

 

 

(9,080)

(6,734)

(8,199)

(8,469)

(10,063)

(7,974)

(6,180)

Long term borrowings

0

0

0

0

0

0

0

Lease liabilities

0

0

0

(3,294)

(2,419)

(1,544)

(669)

Other long term liabilities

(9,080)

(6,734)

(8,199)

(5,175)

(7,644)

(6,430)

(5,511)

Net Assets

 

 

114,142

108,014

102,659

104,198

110,576

120,476

135,047

CASH FLOW

Operating Cash Flow

 

 

43,657

48,834

49,873

50,059

52,675

57,224

61,342

Net Interest

(324)

(356)

(214)

(93)

(300)

(200)

(200)

Tax

(7,655)

(8,139)

(5,830)

(4,466)

(8,557)

(8,294)

(9,273)

Capex

(12,084)

(11,342)

(12,767)

(13,119)

(12,500)

(12,300)

(12,300)

Acquisitions/disposals

(1,790)

329

(9,269)

5,152

(1,005)

(1,020)

0

Financing

881

571

906

(2,369)

(500)

(500)

(500)

Dividends

(14,006)

(15,476)

(21,070)

(18,745)

(20,196)

(21,083)

(21,842)

Net Cash Flow

8,679

14,421

1,629

16,419

9,617

13,827

17,227

Opening net debt/(cash)

 

 

9,109

430

(13,991)

(15,620)

(31,099)

(39,841)

(52,793)

Finance leases initiated

0

0

0

(940)

(875)

(875)

(875)

Other

0

0

0

0

(0)

0

0

Closing net debt/(cash)

 

 

430

(13,991)

(15,620)

(31,099)

(39,841)

(52,793)

(69,145)

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 2020 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

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

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 2020 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

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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