“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 24/03/2023
GBP0.23
▲ 0.10 (0.45%)
Market capitalisation
GBP21m
Research: TMT
On a pro forma basis, Induction Healthcare’s FY22 results were in line with our forecasts and market consensus, with revenues up 8x y-o-y to £12.1m and a move to adjusted EBITDA break-even. Contract renewals for Attend Anywhere with the NHS at the end of FY22 saw higher retention rates than management expected, as well as some increases in contract value and length. These improvements drove an increase in the group’s annual recurring revenue (ARR) to £13.5m and help de-risk its recurring revenues moving forward as most were signed on a two- or three-year term. We believe the share price does not factor in this robust revenue visibility, with the group trading at an average 57% discount to its healthcare technology peers on EV/sales across FY23 and FY24.
Induction Healthcare Group |
Secured outlook |
Final FY22 results |
Software and comp services |
30 November 2022 |
Share price performance
Business description
Next events
Analysts
Induction Healthcare Group is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||||||||||||||
On a pro forma basis, Induction Healthcare’s FY22 results were in line with our forecasts and market consensus, with revenues up 8x y-o-y to £12.1m and a move to adjusted EBITDA break-even. Contract renewals for Attend Anywhere with the NHS at the end of FY22 saw higher retention rates than management expected, as well as some increases in contract value and length. These improvements drove an increase in the group’s annual recurring revenue (ARR) to £13.5m and help de-risk its recurring revenues moving forward as most were signed on a two- or three-year term. We believe the share price does not factor in this robust revenue visibility, with the group trading at an average 57% discount to its healthcare technology peers on EV/sales across FY23 and FY24.
Year end |
Revenue (£m) |
Adj EBITDA |
PBT* |
EPS* |
DPS |
EV/sales |
EV/EBITDA |
03/21 |
1.4 |
(4.3) |
(7.0) |
(17.5) |
0.0 |
15.8 |
N/A |
03/22 |
7.9 |
(4.2) |
(8.0) |
(9.7) |
0.0 |
2.7 |
N/A |
03/23e |
17.6 |
1.6 |
0.3 |
0.3 |
0.0 |
1.2 |
13.8 |
03/24e |
21.0 |
2.4 |
1.2 |
1.0 |
0.0 |
1.0 |
8.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
One-off IFRS 3 adjustment reduces reported results
Reported FY22 revenue and profitability were affected by a £4.2m non-cash IFRS 3 adjustment relating to deferred revenue on Attend Anywhere’s balance sheet when Induction acquired it in June 2021. The same IFRS 3 accounting treatment had a similar, but much smaller impact on its FY21 results following the acquisition of Zesty in the year. We note that this is a one-off, non-cash adjustment and does not materially affect reported cash flows or our forecasts, which we show in more detail in Exhibit 1.
Robust outlook despite trading environment
In H123, the group signed a non-exclusive software reseller agreement with System C Healthcare, which will make it easier for NHS trusts already using System C’s CareFlow electronic patient record to procure Induction’s Zesty product. This provides positive tailwinds alongside both Attend Anywhere FY22 contract renewals and the current UK focus on improving digitisation in the NHS. We believe the UK will remain committed to investing in the NHS’s digital capabilities. However, the timing of these investments remains uncertain due to the challenging economic environment and we therefore leave our forecasts unchanged. In the longer term, management believes it could deliver ARR from the British Isles of £30–35m over the next three years as it builds on the integrated strategy for its current suite of products; M&A could boost this growth.
Valuation: Not factoring in revenue visibility
On EV/Sales, Induction trades at an average 57% discount to its healthcare technology peers across FY23 and FY24. Were the shares to trade at parity, the implied share price would be 57p, suggesting an upside of 53%.
IFRS 3 impact on reported performance
As shown in Exhibit 1, the application of IFRS 3 resulted in a £4.2m non-cash reduction in both reported revenue and EBITDA. This accounting standard requires the group to determine all acquired assets and liabilities at fair value, including the deferred income of the acquiree even if it subsequently becomes recognised as revenue.
The deferred income on Attend Anywhere’s balance sheet pre-acquisition would have been measured as the value of cash received from invoices less revenue recognised to date on the contracts related to the invoices. According to IFRS 3, on acquisition, the deferred income balance is revalued based on the costs incurred by the acquirer to deliver the contract plus a reasonable profit margin. In Induction’s case, those costs included hosting fees, staff costs to support the operation of the platform and provide support and maintenance, and other software fees required for the operation of the platform, to which a profit margin of 28% was applied. In total, this value was £4.2m lower than the deferred income recorded on Attend Anywhere’s balance sheet. The customer still has access to the same software and Attend Anywhere was paid the full amount in cash upfront, so there is no cash impact for Induction. For new Attend Anywhere contracts signed after the acquisition date, accounting reverts to the standard method of deferred income recognition.
On a pro forma basis, Induction Healthcare’s FY22 results were broadly in line with our forecasts, as can be seen in Exhibit 1. We believe this is a more accurate method of measuring Induction’s performance in the year, as Attend Anywhere’s deferred revenue was subsequently realised by Induction in the year and the accounting treatment had no impact on cash.
We note that the IFRS 3 accounting treatment had a similar, but far less substantial impact to the group’s performance in FY21 following the acquisition of Zesty.
Exhibit 1: Summary of impact of IFRS 3 on results
£000s |
FY21 (old) |
FY21 (restated) |
Change |
FY22e |
FY22 (reported) |
Change |
Reported revenue |
1,513 |
1,361 |
-10% |
12,096 |
7,908 |
-35% |
Attend Anywhere |
- |
- |
0% |
10,300 |
5,715 |
0% |
Zesty |
872 |
753 |
-14% |
1,064 |
1,517 |
43% |
Guidance |
636 |
603 |
(5)% |
700 |
642 |
-8% |
Switch |
5 |
5 |
0% |
32 |
34 |
6% |
IFRS 3 adjustment |
- |
243 |
N/A |
- |
4,209 |
N/A |
Pro forma revenue |
1,513 |
1,604 |
6% |
12,096 |
12,117 |
0% |
EBITDA |
(6,895) |
(5,393) |
-3% |
(4,228) |
(5,732) |
36% |
Add back: share-based payments and one-off charges |
2,282* |
1,073 |
4,131* |
1,548 |
||
Adjusted EBITDA |
(4,613) |
(4,320) |
-9% |
(97) |
(4,212) |
4,227% |
IFRS 3 adjustment |
0 |
243 |
0 |
4,209 |
||
Pro forma adjusted EBITDA |
(4,613) |
(4,077) |
-13% |
(97) |
(4) |
N/A |
Net debt/(cash) |
(2,471) |
(2,472) |
0% |
(8,093) |
(7,496) |
-7% |
Source: Induction Healthcare, Edison Investment Research. Note: *Included contract liability IFRS 3 fair value adjustments of £152k for FY21 and £1,742k for FY22e.
Exhibit 2: Financial summary
£'000s |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
0 |
148 |
1,361 |
7,908 |
17,565 |
20,970 |
Cost of Sales |
(66) |
(73) |
(636) |
(2,920) |
(3,513) |
(4,194) |
||
Gross Profit |
(66) |
75 |
725 |
4,988 |
14,052 |
16,776 |
||
EBITDA |
|
|
(2,696) |
(3,074) |
(4,320) |
(4,212) |
1,553 |
2,425 |
Normalised operating profit |
|
|
(2,707) |
(3,480) |
(6,951) |
(7,997) |
296 |
1,168 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
(1,900) |
(1,800) |
||
Exceptionals |
0 |
0 |
(375) |
(935) |
0 |
0 |
||
Share-based payments |
0 |
(94) |
(698) |
(613) |
(792) |
(808) |
||
Reported operating profit |
(2,707) |
(3,574) |
(8,024) |
(9,545) |
(2,396) |
(1,440) |
||
Net Interest |
0 |
47 |
(2) |
(29) |
(10) |
(6) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
(91) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(2,707) |
(3,433) |
(6,953) |
(8,026) |
286 |
1,162 |
Profit Before Tax (reported) |
|
|
(2,707) |
(3,527) |
(8,117) |
(9,574) |
(2,406) |
(1,446) |
Reported tax |
0 |
0 |
503 |
1,140 |
0 |
0 |
||
Profit After Tax (norm) |
(2,707) |
(3,433) |
(6,953) |
(8,026) |
232 |
941 |
||
Profit After Tax (reported) |
(2,707) |
(3,527) |
(7,614) |
(8,434) |
(2,406) |
(1,446) |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(2,707) |
(3,433) |
(6,953) |
(8,026) |
232 |
941 |
||
Net income (reported) |
(2,707) |
(3,527) |
(7,614) |
(8,434) |
(2,406) |
(1,446) |
||
Basic average number of shares outstanding (m) |
13.2 |
26.2 |
39.7 |
82.5 |
92.1 |
92.1 |
||
EPS - basic normalised (p) |
|
|
(20.6) |
(13.1) |
(17.5) |
(9.7) |
0.3 |
1.0 |
EPS - diluted normalised (p) |
|
|
(20.6) |
(13.1) |
(17.5) |
(9.7) |
0.3 |
1.0 |
EPS - basic reported (p) |
|
|
(20.6) |
(13.5) |
(19.2) |
(10.2) |
(2.6) |
(1.6) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
N/A |
820 |
481 |
122 |
19 |
||
Gross Margin (%) |
N/A |
51 |
53 |
63 |
80 |
80 |
||
EBITDA Margin (%) |
N/A |
(2077) |
(317) |
(53) |
9 |
12 |
||
Normalised Operating Margin |
N/A |
(2351) |
(511) |
(101) |
2 |
6 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
222 |
3,999 |
16,153 |
42,504 |
43,839 |
45,693 |
Intangible Assets |
222 |
3,902 |
15,258 |
40,720 |
41,798 |
43,395 |
||
Tangible Assets |
0 |
0 |
15 |
244 |
501 |
758 |
||
Investments & other |
0 |
97 |
880 |
1,540 |
1,540 |
1,540 |
||
Current Assets |
|
|
397 |
10,881 |
3,970 |
12,872 |
14,690 |
14,086 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors & contract assets |
128 |
163 |
1,051 |
4,136 |
8,608 |
10,568 |
||
Cash & cash equivalents |
169 |
10,718 |
2,472 |
7,496 |
4,842 |
2,278 |
||
Other |
100 |
0 |
447 |
1,240 |
1,240 |
1,240 |
||
Current Liabilities |
|
|
(3,261) |
(2,074) |
(2,421) |
(6,806) |
(11,616) |
(13,504) |
Creditors & contract liabilities |
(761) |
(665) |
(2,423) |
(5,945) |
(11,544) |
(13,432) |
||
Other financial liabilities |
0 |
(1,409) |
0 |
(72) |
(72) |
(72) |
||
Short term borrowings |
(2,500) |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
2 |
(789) |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
(359) |
(1,235) |
(6,305) |
(6,262) |
(6,262) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
(359) |
(1,235) |
(6,305) |
(6,262) |
(6,262) |
||
Net Assets |
|
|
(2,642) |
12,447 |
16,467 |
42,265 |
40,651 |
40,013 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
(2,642) |
12,447 |
16,467 |
42,265 |
40,651 |
40,013 |
CASH FLOW |
||||||||
Net income |
(2,707) |
(3,527) |
(7,614) |
(8,434) |
(2,406) |
(1,446) |
||
Depreciation & amortisation |
0 |
323 |
1,347 |
3,813 |
3,157 |
3,057 |
||
Working capital |
533 |
(313) |
600 |
2,776 |
1,127 |
(72) |
||
Net interest |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptional & other |
11 |
170 |
2,158 |
613 |
(50) |
801 |
||
Tax |
0 |
0 |
(503) |
(829) |
0 |
0 |
||
Net operating cash flow |
|
|
(2,163) |
(3,347) |
(4,012) |
(2,061) |
1,828 |
2,340 |
Capex |
(454) |
(761) |
(1,666) |
(3,347) |
(4,482) |
(4,904) |
||
Acquisitions/disposals |
0 |
(976) |
(1,987) |
(13,486) |
0 |
0 |
||
Change in borrowing |
2,500 |
0 |
(501) |
0 |
0 |
0 |
||
Equity financing |
30 |
16,115 |
(64) |
23,810 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(490) |
1 |
199 |
0 |
0 |
||
Net Cash Flow |
(87) |
10,541 |
(8,229) |
5,115 |
(2,654) |
(2,564) |
||
Opening net debt/(cash) |
|
|
0 |
(2,669) |
(10,718) |
(2,472) |
(7,496) |
(4,842) |
FX |
(1) |
8 |
(17) |
(91) |
0 |
0 |
||
Other non-cash movements |
2,757 |
(2,500) |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(2,669) |
(10,718) |
(2,472) |
(7,496) |
(4,842) |
(2,278) |
Source: Company accounts, Edison Investment Research
|
|
Research: Investment Companies
Murray Income Trust (MUT) invests mainly in UK equities and aims to provide a high and growing income, combined with capital growth. The trust is meeting these three objectives. The FY23 dividend is expected to be at least 36.5p, putting it on track to deliver its 50th consecutive year of dividend growth. This represents a prospective yield of 4.4%. MUT has underperformed during this year’s market rotation away from the quality companies favoured by manager Charles Luke. However, the trust has slightly outpaced the market over the long term on an NAV basis; in the 10 years ended October 2022, MUT’s average annualised NAV return was 6.7%, compared to an average market return of 6.3%.
Get access to the very latest content matched to your personal investment style.
