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Market capitalisation
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EMIS Group |
FY16 in line despite NHS challenges |
Trading update |
Software & comp services |
27 January 2017 |
Share price performance
Business description
Next events
Analyst
EMIS Group is a research client of Edison Investment Research Limited |
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EMIS has confirmed that trading was in line with expectations for FY16, despite a challenging environment in the NHS. Primary Care, Community Pharmacy and Patient all performed well in H216, offset by weaker trading for Secondary Care, Specialist Care and CCMH. We make no changes to our forecasts pending FY16 results in March. Despite the short-term impact on demand from NHS funding issues, we expect the need for an integrated approach to healthcare to drive demand for EMIS solutions in the longer term.
Year |
Revenue (£m) |
EBITDA* |
EPS* |
EMIS adj. EPS** (p) |
P/E |
Yield |
12/14 |
137.6 |
47.6 |
42.8 |
39.4 |
19.5 |
2.2 |
12/15 |
155.9 |
52.0 |
46.0 |
45.1 |
18.1 |
2.5 |
12/16e |
162.5 |
54.1 |
48.6 |
47.4 |
17.2 |
2.8 |
12/17e |
172.2 |
57.2 |
51.9 |
50.8 |
16.1 |
2.9 |
Note: *EBITDA 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.
FY16 in line with expectations, despite headwinds
EMIS expects to report FY16 results in line with expectations. While Primary Care has maintained its market position and Community Pharmacy trading was on track, NHS funding pressures have made for challenging trading in the Secondary Care (SC) business and to a lesser extent in Community, Child and Mental Health (CCMH). Despite this, CCMH grew market share in H216 and we assume it met its 15% year-end target. Recent restructuring in SC should mitigate the impact on profitability. Specialist Care remains challenging and a non-cash impairment charge is being considered; processes have been put in place to improve profitability over the life of existing contracts.
Restructuring to reflect changing NHS focus
EMIS has decided to bring the Primary, Secondary and CCMH businesses under common management, mirroring the way the NHS is likely to procure in the future; exceptional restructuring costs will be incurred in FY17. In H216 a new CEO was hired for Patient, and we expect to hear more on plans for this business at results on 16 March. With the acquisition of Intrelate, a mobile social care software provider, EMIS made its first (small) foray into the social care space. As pressure grows for the government to integrate health and social care, this gives the company the chance to explore ways to address this market.
Valuation: Clarity on FY17 outlook key
We make no change to forecasts at this point, pending results in March when we should get more clarity on restructuring and future investment plans. On an FY17e P/E of 16.1x after the reaction to the trading update, the stock is trading at a c 20% discount to its peer group. Evidence of improvement in the Secondary and Specialist Care businesses will be key to share price upside in the shorter term. We believe the NHS’s digital agenda continues to support long-term growth for EMIS. Strong cash generation underpins the c 3% dividend yield.
Exhibit 1: Financial summary
£'000s |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
||||||||
PROFIT & LOSS |
||||||||
Revenue |
|
|
86,333 |
105,542 |
137,639 |
155,898 |
162,513 |
172,178 |
Cost of Sales |
(10,891) |
(11,780) |
(12,782) |
(12,955) |
(15,114) |
(16,977) |
||
Gross Profit |
75,442 |
93,762 |
124,857 |
142,943 |
147,400 |
155,201 |
||
EBITDA |
|
|
33,178 |
38,885 |
47,645 |
51,964 |
54,057 |
57,193 |
Operating Profit (before amort. of acq. intang, SBP and except.) |
27,619 |
30,482 |
34,787 |
37,123 |
39,660 |
42,196 |
||
Amortisation of acquired intangibles |
(2,983) |
(4,198) |
(6,269) |
(6,509) |
(6,697) |
(6,697) |
||
Exceptionals |
(435) |
(1,144) |
873 |
(18,500) |
(652) |
0 |
||
Share-based payments |
(90) |
(195) |
(270) |
(684) |
(1,000) |
(1,000) |
||
Operating Profit |
24,111 |
24,945 |
29,121 |
11,430 |
31,311 |
34,499 |
||
Net Interest |
(76) |
(242) |
(543) |
(449) |
(400) |
(150) |
||
Profit Before Tax (norm) |
|
|
27,567 |
30,172 |
34,206 |
36,625 |
39,610 |
42,396 |
Profit Before Tax (FRS 3) |
|
|
24,059 |
24,635 |
28,540 |
10,932 |
31,261 |
34,699 |
Tax |
(4,625) |
(4,706) |
(5,719) |
(5,558) |
(6,408) |
(7,113) |
||
Profit After Tax (norm) |
23,191 |
25,179 |
27,617 |
29,801 |
31,490 |
33,705 |
||
Profit After Tax (FRS3) |
19,434 |
19,929 |
22,821 |
5,374 |
24,852 |
27,586 |
||
Average Number of Shares Outstanding (m) |
58.2 |
59.4 |
62.8 |
62.7 |
62.8 |
62.8 |
||
EPS - normalised & diluted (p) |
|
|
39.0 |
41.4 |
42.8 |
46.0 |
48.6 |
51.9 |
EPS - EMIS adjusted (p) |
|
|
30.7 |
34.0 |
39.4 |
45.1 |
47.4 |
50.8 |
EPS - FRS 3 (p) |
|
|
32.5 |
32.6 |
35.3 |
7.2 |
38.2 |
42.3 |
Dividend (p) |
14.2 |
16.0 |
18.4 |
21.2 |
23.4 |
24.4 |
||
Gross Margin (%) |
87.4% |
88.8% |
90.7% |
91.7% |
90.7% |
90.1% |
||
EBITDA Margin (%) |
38.4% |
36.8% |
34.6% |
33.3% |
33.3% |
33.2% |
||
Operating Margin (before GW and except.) (%) |
32.0% |
28.9% |
25.3% |
23.8% |
24.4% |
24.5% |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
77,673 |
153,838 |
166,415 |
143,546 |
134,452 |
126,258 |
Intangible Assets |
52,789 |
126,468 |
139,397 |
121,383 |
113,489 |
105,595 |
||
Tangible Assets |
22,144 |
24,610 |
24,313 |
22,032 |
20,832 |
20,532 |
||
Other fixed assets |
2,740 |
2,760 |
2,705 |
131 |
131 |
131 |
||
Current Assets |
|
|
27,538 |
27,046 |
37,221 |
39,800 |
47,466 |
68,212 |
Stocks |
1,243 |
1,431 |
1,550 |
1,206 |
1,206 |
1,206 |
||
Debtors |
15,188 |
21,448 |
28,732 |
33,893 |
36,305 |
39,181 |
||
Cash |
11,107 |
4,167 |
6,939 |
4,701 |
9,955 |
27,825 |
||
Current Liabilities |
|
|
(30,598) |
(54,530) |
(67,665) |
(63,819) |
(53,819) |
(55,244) |
Creditors |
(30,202) |
(46,628) |
(54,763) |
(51,960) |
(43,960) |
(46,385) |
||
Short term borrowings |
(396) |
(7,902) |
(12,902) |
(11,859) |
(9,859) |
(8,859) |
||
Long Term Liabilities |
|
|
(10,548) |
(22,231) |
(21,063) |
(12,481) |
(10,681) |
(10,681) |
Long term borrowings |
(3,000) |
(9,756) |
(5,854) |
(1,951) |
(151) |
(151) |
||
Other long term liabilities |
(7,548) |
(12,475) |
(15,209) |
(10,530) |
(10,530) |
(10,530) |
||
Net Assets |
|
|
64,065 |
104,123 |
114,908 |
107,046 |
117,418 |
128,545 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
32,732 |
38,725 |
44,856 |
42,711 |
44,493 |
56,742 |
Net Interest |
(60) |
(580) |
(445) |
(422) |
(300) |
(50) |
||
Tax |
(4,566) |
(5,073) |
(5,247) |
(6,896) |
(8,120) |
(8,691) |
||
Capex |
(18,342) |
(15,025) |
(15,161) |
(14,058) |
(12,000) |
(13,500) |
||
Acquisitions/disposals |
(512) |
(57,315) |
(9,959) |
(4,587) |
(1,500) |
0 |
||
Financing |
(1,816) |
27,212 |
(1,578) |
492 |
600 |
(500) |
||
Dividends |
(7,735) |
(9,146) |
(10,792) |
(14,532) |
(14,118) |
(15,131) |
||
Net Cash Flow |
(299) |
(21,202) |
1,674 |
2,708 |
9,054 |
18,869 |
||
Opening net debt/(cash) |
|
|
(8,026) |
(7,711) |
13,491 |
11,817 |
9,109 |
55 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(16) |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(7,711) |
13,491 |
11,817 |
9,109 |
55 |
(18,815) |
Source: EMIS, Edison Investment Research
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