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EMIS - sales healthy despite pandemic

Nicholas Hyett, Equity Analyst | 14 July 2020 | A A A
EMIS - sales healthy despite pandemic

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Emis Group Plc Ord 1p

Sell: 1,264.00 | Buy: 1,268.00 | Change 0.00 (0.00%)
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Trading in the first half of the year has been in line with management expectations - although revenue is marginally below where it was at this point last year. Full year expectations remain unchanged.

EMIS Health has maintained its market share and made progress with new business sales, albeit at lower margins. EMIS Enterprise has increased its recurring revenues, although the lockdown has negatively impacted some sales.

EMIS finished the half with net cash of £44.1m, up from £31.3m at the start of the year, boosted by the VAT holiday. The group remains debt free.

View the latest EMIS share price and how to deal

Our view

EMIS provides software to GPs and pharmacies, helping them manage practices and keep patient records. Its products will be right at the heart of the UK's coronavirus response, yet the group expects to see relatively little impact from the pandemic.

GP customers are signed up to long term contracts. And although the group is making certain services available to customers free of charge and rolling out coronavirus specific functionality, the cost of doing so is minimal.

It's an indication of the fundamental attractiveness of the software as a service (or SaaS in industry jargon) model. Building the platform is expensive, time consuming and requires significant expertise, but adding new customers is essentially costless. That makes EMIS very cash generative with a reasonably low cost base - both excellent qualities in the current climate. Add in a net cash position and the group should be well placed to withstand the market turmoil.

Long term the business model has plenty of attractions too. 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.

While the group hasn't always lived up to its promise, Chief executive Andy Thorburn has steadied the ship since taking the helm in 2017. Cash generation has enabled EMIS to quickly repay the debt taken on to fund acquisitions and still increase the dividend. The shares currently offer a prospective yield of 3.2%.

As things stand, the NHS is pretty much the be-all and end-all. While it's a reliable customer there's always a risk a competitor muscles in and decimates your revenue stream. Thorburn wants the private sector to contribute 50% of EMIS' revenues, and has his eye on opportunities in the medicine supply chain and expanding the patient information business.

We believe EMIS could do well over the long term. However, the shares have performed better than the wider market in recent months and as a result the company now trades on a PE ratio of 21.3, some way above the long term average of 19.4.

Emis key facts

  • Forward Price/Earnings ratio: 21.3
  • 10 year average Forward Price/Earnings ratio: 19.4
  • Prospective yield: 3.2%

We've introduced this section in response to recent survey feedback. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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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.