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EMIS Group - strong growth ahead of upcoming takeover

EMIS reported first half revenue of £87.3m, up 5% year-on-year.

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EMIS reported first half revenue of £87.3m, up 5% year-on-year. This was fuelled by growth in EMIS Enterprise, where recent acquisitions also showed positive contributions.

Underlying operating profit rose 12% to £22.4m as strong growth in recurring revenue partly offset lower non-recurring revenues, higher staff costs and increased operating expenses. Reported operating profit fell 6.1% to £15.3m as the group took a £4.3m one-off exceptional cost relating to its technology transformation programme, as well as corporate transaction costs.

On 17 June 2022, EMIS announced it was being acquired by Optum UK, a subsidiary of UnitedHealth Group, who has proposed to acquire the entire issued share capital of EMIS for 1,925p per share. Shareholders and regulators have both approved the takeover, which is set to take place at the end of 2022, subject mainly to Court approvals.

The group announced a dividend of 17.6p per share, unchanged from last year.

The shares were broadly flat following the announcement.

View the latest EMIS share price and how to deal

Our View

Emis has one foot out the door as it prepares to be absorbed into Optum UK before the year is out. EMIS provides software to GPs and pharmacies, helping them manage practices and keep patient records, so joining the subsidiary of US healthcare and insurance giant UnitedHealth Group makes sense.

With only a few weeks left in the group's life as an independent firm, things look relatively rosy. Demand for Emis' offerings has been strong as healthcare services are increasingly delivered digitally, feeding into its long-term story.

Recurring revenues are a huge part of the group's attraction. 82% of group revenue comes from this channel, which gives it excellent revenue visibility - a real asset in an uncertain market.

EMIS's software as a service (or SaaS in industry jargon) model is also fundamentally attractive. Building the platform is expensive, time consuming and requires significant expertise, but adding new customers is essentially costless. That should make EMIS, with its long-term contracts, 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 is well placed to withstand market turmoil.

Loyal GP customers generate significant recurring revenues and improving IT infrastructure is a clear priority for the NHS. Over half of the UK's GP's use EMIS' software. As a result, profits should be reliable.

However Emis will be a drop in a much larger bucket once the purchase has gone through. Given that both shareholders and regulators have greenlit the deal, there's very little chance of it stalling at this point. With that in mind, we will no longer cover Emis as part of our Share Research service. Data and views below were correct at the time of original publication. This shouldn't be used to form an up-to-date picture of Emis's investment case.

EMIS key facts

All ratios are sourced from Refinitiv. 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.

Half Year Results

In EMIS Health, revenue was lower at £51.3m (2021 H1: £54.3m) principally due to a reduction in non-recurring hardware sales and a planned reduction in lower margin resale partner activities. This higher quality revenue mix and tight cost control allowed underlying operating profit to remain stable at £12.5m.

In EMIS Enterprise, revenue increased by 23% to £35.9m (2021 H1: £29.3m) driven by strong growth in the areas of analytics and partners in particular, with encouraging contributions from the two acquisitions completed in the period. Underlying operating profit increased by 28% to £10.7m.

Capital expenditure, including capitalised development costs, fell 5.6% to £3.4m. The Group ended the period with net cash of £53.6m, up 11.7% from last year.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 28th September 2022