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EMIS - Steady first half, dividend rises 10%

Nicholas Hyett | 30 August 2019 | A A A
EMIS - Steady first half, dividend rises 10%

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Emis Group Plc Ord 1p

Sell: 1,866.00 | Buy: 1,868.00 | Change 2.00 (0.11%)
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EMIS reported revenues of £79.8m in the first half of the year, up 7%, with underlying operating profits up 8% to £18.2m. Growth was driven by the EMIS Enterprise business.

The company announced an interim dividend of 15.6p, up 10% year-on-year.

The shares were broadly flat in early trading.

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Our view

EMIS provides software to GPs and pharmacies, helping them to manage practices and keep patient records.

The business model has plenty of attractions, not least the fact that reinvestment requirements are low. Loyal GP customers generate significant recurring revenues and improving IT infrastructure is a clear priority for the NHS. As a result, profits should be reliable, ultimately flowing back to shareholders as dividends.

However, the group hasn't quite lived up to its promise. It would be unfair to blame it for the headwinds of the NHS' spending squeeze, but there have been own goals too. The now-sold Specialist Care Division ran into problems with its contracts, and then there was the failure to properly report data back to NHS Digital (NHSD).

Still, we think there are reasons for optimism.

Chief executive Andy Thorburn has steadied the ship since taking the helm in 2017. In the meantime, cash generation has remained strong, enabling EMIS to quickly repay the debt taken on to fund acquisitions, pay the settlement and still increase the dividend. The shares currently offer a prospective yield of 2.9%.

We think Thorburn's longer-term strategy makes sense too - selling off non-core divisions, while also increasing EMIS' exposure to private sector contracts. As things stand, the NHS is pretty much the be-all, end-all, and that's a risk. Thorburn wants the private sector to contribute 50% of EMIS' revenues, and has his eye on opportunities in the medicine supply chain and the existing patient business.

Add in the longer-term potential to deliver the joined-up healthcare system the country wants, and EMIS could yet be a long term winner.

Still, smooth execution will be needed from here on, especially with recent disappointments still fresh in the memory, and the shares trading on a price to earnings ratio of 21.9. That's around 13% above their longer-term average.

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Half Year Results

EMIS Health saw revenues rise 3% to £50.3m, with market share the same as at the start of the year. Increased investment in the new EMIS-X platform drove operating profits 3.6% lower to £10.8m.

The group's business-to-business division, EMIS Enterprise, saw revenues rise 14% to £29.5m, with operating profits of £8.1m compared to £6.7m this time last year. Market shares in community and hospital pharmacy remained broadly unchanged, with good growth in the patient facing Patient Access app.

Underlying cash flow fell 18.2% to £27.5m, with the group putting the fall down to timing of working capital. The balance sheet remains net cash, at £26.7m, down 17.3% year-on-year.

The group continues to target mid-to-high single digit revenue growth, with operating margins improving towards 30% in the medium term (compared to 22.8% today).

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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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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