Emis Group Plc (EMIS) Ord 1p
HL comment (9 September 2021)
EMIS reported first half revenues of £83.5m, up 7% year-on-year. That reflects particularly strong growth in EMIS Enterprise, following the introduction of a national vaccination system to record and communicate vaccination status across the NHS and to individuals.
Operating profits rose 13% to £20.0m, although cash conversion declined as the benefits of delayed VAT payments during the pandemic unwound.
The group announced an interim dividend of 17.6%, up 10% year-on-year.
EMIS shares fell 1.0% in early trading.
EMIS provides software to GPs and pharmacies, helping them manage practices and keep patient records.
Its products have been right at the heart of the UK's coronavirus response. It's Outcomes4Health product was at one point the only system capable of recording vaccines done outside a hospital setting and has recorded 66 million vaccines to date. Other products have also seen demand surge as healthcare services are increasingly delivered digitally.
Half year numbers do raise some questions about the quality of recent revenue growth. One-off sales have out-paced recurring revenues, and while recurring revenue still accounts for nearly 80% of total revenues it's not something we'd like to become a trend. Cash conversion is also poor, and while most of that is down to one-off VAT delays related to the pandemic it's another thing to watch.
Those worries aside we think EMIS's software as a service (or SaaS in industry jargon) model is 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.
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 increased the dividend. The shares currently offer a prospective yield of around 2.5% although remember no dividend is guaranteed.
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, There's also the 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 there's potential at EMIS. However, the opportunities are reflected in a PE ratio some 28% above the 10 year average. While this isn't at an unreasonable level in our view, it could increase the chances of some ups and downs.
EMIS key facts
- Price/earnings ratio: 25.1
- Ten year average Price/earnings ratio: 19.6
- Prospective dividend yield (next 12 months): 2.5%
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
EMIS Health reported sales of £54.3m, up 0.5% year-on-year. Growth across much of the division was mostly offset by lower hardware sales, while investment in the GP IT Futures contract continues.
EMIS Enterprise revenues rose 21.3% to £29.3m. This reflects benefits from the acquisition of Pinnacle in 2020 - which as well as bringing in existing revenues allowed the group to launch its Outcomes4Health vaccination system. Patient Access reached 13.0m registered users, up from 11.7m at the start of the year.
Capital expenditure, including capitalised development costs, fell 27% to £3.6bn. The group ended the half with net cash of £48.0m, up 9% on the same point last year.
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 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.
Previous Emis Group Plc updates
The London Stock Exchange does not disclose whether a trade is a buy or a sell so this data is estimated based on the trade price received and the LSE-quoted mid-price at the point the trade is placed. It should only be considered an indication and not a recommendation.
Trades priced above the mid-price at the time the trade is placed are labelled as a buy; those priced below the mid-price are sells; and those priced close to the mid-price or declared late are labelled 'N/A'.