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In H118, EMIS traded in line with management’s expectations and generated year-on-year revenue growth. All divisions saw solid performance and management expects to meet FY18 expectations. The company continues to work on developing longer-term growth plans; these will be key to reinvigorating revenue and earnings growth, which in our view will be the trigger to closing the valuation discount versus peers.
EMIS Group |
Solid H1; on track to meet FY18 expectations |
Trading update |
Software & comp services |
17 July 2018 |
Share price performance
Business description
Next events
Analysts
EMIS Group is a research client of Edison Investment Research Limited |
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In H118, EMIS traded in line with management’s expectations and generated year-on-year revenue growth. All divisions saw solid performance and management expects to meet FY18 expectations. The company continues to work on developing longer-term growth plans; these will be key to reinvigorating revenue and earnings growth, which in our view will be the trigger to closing the valuation discount versus peers.
Year end |
Revenue (£m) |
PBT* |
Dil EPS* |
EMIS adj. dil. EPS** (p) |
DPS |
P/E |
12/17 |
160.4 |
35.2 |
43.1 |
47.0 |
25.8 |
20.1 |
12/18e |
165.7 |
36.7 |
45.0 |
46.5 |
26.8 |
19.2 |
12/19e |
171.6 |
39.8 |
48.7 |
48.4 |
27.8 |
17.8 |
12/20e |
178.5 |
42.9 |
53.1 |
53.2 |
29.0 |
16.3 |
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.
H1 trading in line; solid divisional performance
Management confirmed that trading in H118 was in line with expectations, with revenues ahead on a year-on-year basis, and unchanged expectations for FY18. The Primary Care business maintained its market share and is making progress in resolving the service level issues first announced in January. The Community business won additional contracts in H1 and the Acute business saw an improved performance in the period. The Community Pharmacy roll-out of ProScript Connect is on track and the Specialist & Care business maintained the better performance already seen in H217. Net cash grew to £32.3m by the end of H118, up from £10.5m a year ago and £14.0m at the end of FY17.
Working on longer-term growth plans
The company has ambitious plans to build a UK marketplace for healthcare, centred around its Patient business line. The upgraded Patient Access app was launched in May, which after some initial issues is now working well. The patient.info service continues to grow its audience and is increasing its focus on advertising sales. Management has been developing detailed plans for longer-term growth of the group as a whole, and we expect to hear more on this when the company reports interims on 31 August.
Valuation: Revenue and earnings growth key
Since the low of 705p reached in February, EMIS has gained 23% and is now trading only 10% below the level it was at before disclosing the service level issues in January. The company is now trading on 19.2x FY18e EPS, at a 28% discount to its peer group median. Although EMIS is more profitable than its peers, the forecast decline in earnings in FY18 is weighing on the valuation. Evidence of earnings growth resumption will be key to share price upside – in the shorter term, this could include positive news on the Scottish and English primary care procurements, and in the longer term, evidence that the investment in Patient is paying off. Strong cash generation underpins the 3% dividend yield.
Exhibit 1: Financial summary
£'000s |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Year end 31 December |
|||||||||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
137,639 |
155,898 |
158,712 |
160,354 |
165,748 |
171,567 |
178,455 |
Cost of Sales |
(12,782) |
(12,955) |
(14,151) |
(14,674) |
(14,984) |
(15,784) |
(16,668) |
||
Gross Profit |
124,857 |
142,943 |
144,561 |
145,680 |
150,765 |
155,783 |
161,788 |
||
EBITDA |
|
|
47,645 |
51,964 |
52,288 |
49,222 |
50,562 |
52,532 |
55,901 |
Operating Profit (before amort. of acq. intang, SBP and except.) |
34,787 |
37,123 |
38,897 |
34,895 |
36,200 |
39,230 |
42,263 |
||
EMIS adjusted operating profit |
|
|
32,639 |
36,553 |
38,753 |
37,406 |
37,156 |
39,028 |
42,304 |
Amortisation of acquired intangibles |
(6,269) |
(6,509) |
(6,639) |
(6,717) |
(6,718) |
(6,718) |
(6,479) |
||
Exceptionals |
873 |
(18,500) |
(6,714) |
(16,988) |
0 |
0 |
0 |
||
Share-based payments |
(270) |
(684) |
(473) |
(550) |
(1,000) |
(1,000) |
(1,000) |
||
Operating Profit |
29,121 |
11,430 |
25,071 |
10,640 |
28,482 |
31,512 |
34,784 |
||
Net Interest |
(543) |
(449) |
(237) |
(299) |
(50) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
34,206 |
36,625 |
39,159 |
35,192 |
36,746 |
39,826 |
42,859 |
Profit Before Tax (FRS 3) |
|
|
28,540 |
10,932 |
25,333 |
10,937 |
29,028 |
32,108 |
35,380 |
Tax |
(5,719) |
(5,558) |
(5,208) |
(2,074) |
(5,806) |
(6,422) |
(6,722) |
||
Profit After Tax (norm) |
27,617 |
29,801 |
32,175 |
27,989 |
29,397 |
31,861 |
34,715 |
||
Profit After Tax (FRS3) |
22,821 |
5,374 |
20,125 |
8,863 |
23,222 |
25,686 |
28,658 |
||
Average Number of Shares Outstanding (m) |
62.8 |
62.7 |
62.8 |
62.9 |
62.9 |
62.9 |
62.9 |
||
EPS - normalised & diluted (p) |
|
|
42.8 |
46.0 |
49.4 |
43.1 |
45.0 |
48.7 |
53.1 |
EPS - EMIS adjusted & diluted (p) |
|
|
39.4 |
45.1 |
49.2 |
47.0 |
46.5 |
48.4 |
53.2 |
EPS - FRS 3 (p) |
|
|
35.3 |
7.2 |
30.4 |
12.8 |
35.3 |
39.0 |
43.6 |
Dividend (p) |
18.4 |
21.2 |
23.4 |
25.8 |
26.8 |
27.8 |
29.0 |
||
Gross Margin (%) |
90.7% |
91.7% |
91.1% |
90.8% |
91.0% |
90.8% |
90.7% |
||
EBITDA Margin (%) |
34.6% |
33.3% |
32.9% |
30.7% |
30.5% |
30.6% |
31.3% |
||
Operating Margin (before GW and except.) (%) |
25.3% |
23.8% |
24.5% |
21.8% |
21.8% |
22.9% |
23.7% |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
166,415 |
143,546 |
133,292 |
122,979 |
114,899 |
107,879 |
100,762 |
Intangible Assets |
139,397 |
121,383 |
110,953 |
100,844 |
91,764 |
83,844 |
75,927 |
||
Tangible Assets |
24,313 |
22,032 |
22,187 |
22,037 |
23,037 |
23,937 |
24,737 |
||
Other fixed assets |
2,705 |
131 |
152 |
98 |
98 |
98 |
98 |
||
Current Assets |
|
|
37,221 |
39,800 |
46,088 |
56,900 |
60,639 |
76,479 |
95,173 |
Stocks |
1,550 |
1,206 |
1,815 |
1,633 |
1,633 |
1,633 |
1,633 |
||
Debtors |
28,732 |
33,893 |
39,970 |
40,148 |
41,324 |
42,774 |
44,492 |
||
Cash |
6,939 |
4,701 |
4,303 |
13,991 |
17,682 |
32,072 |
49,049 |
||
Current Liabilities |
|
|
(67,665) |
(63,819) |
(56,158) |
(65,131) |
(55,758) |
(57,715) |
(60,032) |
Creditors |
(54,763) |
(51,960) |
(51,425) |
(65,131) |
(55,758) |
(57,715) |
(60,032) |
||
Short term borrowings |
(12,902) |
(11,859) |
(4,733) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(21,063) |
(12,481) |
(9,080) |
(6,734) |
(5,190) |
(3,647) |
(2,226) |
Long term borrowings |
(5,854) |
(1,951) |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(15,209) |
(10,530) |
(9,080) |
(6,734) |
(5,190) |
(3,647) |
(2,226) |
||
Net Assets |
|
|
114,908 |
107,046 |
114,142 |
108,014 |
114,589 |
122,996 |
133,677 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
44,856 |
42,711 |
43,657 |
48,834 |
40,013 |
53,039 |
56,500 |
Net Interest |
(445) |
(422) |
(324) |
(356) |
50 |
100 |
100 |
||
Tax |
(5,247) |
(6,896) |
(7,655) |
(8,139) |
(6,221) |
(7,965) |
(8,143) |
||
Capex |
(15,161) |
(14,058) |
(12,084) |
(11,342) |
(13,000) |
(13,000) |
(13,000) |
||
Acquisitions/disposals |
(9,959) |
(4,587) |
(1,790) |
329 |
0 |
0 |
0 |
||
Financing |
(1,578) |
492 |
881 |
571 |
(500) |
(500) |
(500) |
||
Dividends |
(10,792) |
(14,532) |
(14,006) |
(15,476) |
(16,651) |
(17,284) |
(17,980) |
||
Net Cash Flow |
1,674 |
2,708 |
8,679 |
14,421 |
3,691 |
14,389 |
16,977 |
||
Opening net debt/(cash) |
|
|
13,491 |
11,817 |
9,109 |
430 |
(13,991) |
(17,682) |
(32,072) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
11,817 |
9,109 |
430 |
(13,991) |
(17,682) |
(32,072) |
(49,049) |
Source: EMIS, Edison Investment Research
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