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EMIS - Trading in-line, but service problems emerge

George Salmon | 18 January 2018 | A A A
EMIS - Trading in-line, but service problems emerge

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Emis Group Plc Ord 1p

Sell: 1,394.00 | Buy: 1,398.00 | Change -12.00 (-0.85%)
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A year-end trading update from EMIS confirms trading has been in-line expectations for the full year. However, the group also confirmed problems with its EMIS Web service, which has failed to meet required service levels and reporting obligations with NHS Digital.

EMIS is not yet in a position to ascertain the exact cost, but it looks to be in the upper end of the £5m-£10m mark.

The shares fell 15.9% on the news.

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Our View

EMIS' main business is providing software to GPs and pharmacies to manage their practices and patient record keeping.

The business model carries plenty of advantages, not least the lack of meaningful capital outlay and the fact its loyal GP customers generate significant recurring revenues. However, execution has been poor, with the group failing to live to its promise all too often.

It would be unfair to blame the group for the headwinds of the NHS's spending squeeze. However, we've also seen delays in the roll out of services in Northern Ireland, while the Specialist & Care division, which includes the business acquired in 2013's £57.5m deal for Ascribe, has run into problems with its contracts. The latest issue is a failure to properly report data back to NHS Digital. Details are thin on the ground at this stage, but we'd hope to hear more at or before full year results, due on 14 March.

EMIS' saving grace has been its impressive cash generation has enabled it to quickly repay the debt taken on to fund its acquisitions, while still increasing the dividend. Prior to the price move on 18 January, the shares offered a prospective yield of 2.8%.

While we think the dividend should still be well supported, the challenges facing the new CEO mean he'll likely need to do a bit of firefighting before settling into business-as-usual.

Looking further ahead, the foray into clinical services seems to have taken a back seat, with the focus returning to software provision. However, with the NHS unlikely to allow any one provider to gain full control of its systems, further meaningful market share gains in Primary Care are unlikely. That might explain the plan to grow as an e-commerce platform servicing patients directly.

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Trading details

Revenue is said to be slightly ahead of last year, driven by growth in recurring revenues, market share gains and increasing order books.

The roll-out of EMIS web in Northern Ireland and Scotland continues in Primary, Community & Acute Care. The group expects an update shortly regarding progress in the Welsh re-procurement. Community and Acute both saw contract wins over the period.

In Patient, the websites and mobile applications for both and Patient Access have been refreshed as part of the plan to deliver an evolving online digital platform.

The group now holds a net cash position of £14m, after reporting net debt of £0.4m last year.

Find out more about EMIS shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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