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EMIS - a resilient first half

Nicholas Hyett, Equity Analyst | 9 September 2020 | A A A
EMIS - a resilient first half

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Emis Group Plc Ord 1p

Sell: 1,012.00 | Buy: 1,020.00 | Change -38.00 (-3.61%)
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EMIS reported a 2% decline in total revenues in the first half, to £78.1m, although recurring revenues rose 5%.That reflects the fall in new installations and licence deals in EMIS Enterprise during the lockdown. Underlying operating profits fell 2% to £17.8m.

The group announced an interim dividend of 16p per share, up 3% year-on-year.

The shares rose 1.3% in early trading.

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.

There's been some disruption to onboarding new customers during lockdowns, but generally things have continued to tick along as usual. 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 3.3%.

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, and there is a risk of NHS spending becoming a political football.

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. That could underpin long term growth, but it's still early days and as yet the private sector business is significantly lower margin.

We believe EMIS can 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 20.9, some way above the long term average of 19.5.

Emis key facts

  • Forward Price/Earnings ratio: 20.9
  • Average Price/Earnings ratio since listing: 19.5
  • Prospective yield: 3.3%

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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Half Year Results

EMIS Health, which serves NHS customers, reported revenues in the half of £54.0m, with operating profits of £11.9m - up 7.4% and 10.2% respectively. That reflects increased sales of hardware as the group supported the shift to remote working during lockdown. The division maintained its 57% market share in the GP market but saw slight declines in community (down to 20% from 21%) and acute A&E (down from 23% to 22%) market share.

Revenues in EMIS Enterprise fell 18.3% to £24.1m, with underlying operating profits falling 19.8% to £6.5m. That reflects the decline in licensing and implementation revenues over lockdown. EMIS Enterprise maintained its 37% market leading share in community pharmacy, and its hospital pharmacy share rose to 37% (up from 35% at the end of 2019).

EMIS continues to invest in product development and launched a data analytics tool for the NHS - the first product in the group's new EXA Suite (a cloud based analytics platform). Patient Access, which provides digital access to GP surgeries and pharmacies, grew its user base 8.4 to 10 million patients over the first half.

EMIS finished the first half with net cash of £44.1m, up from £31.1m at the start of the year, boosted by the VAT holiday. The group remains debt free but has access to undrawn bank facilities of £30m if needed.

Find out more about EMIS shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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 disclosure for more information.