Emis Group Plc (EMIS) Ord 1p
HL comment (18 March 2021)
Total revenue of £159.5m for the full year was flat compared to 2019. Recurring revenue rose 4% to £130.0m. Underlying operating profit was also flat, at £39.3m. The group benefited from increased hardware sales during the pandemic, but other areas of the business were held back.
Current trading is in-line with expectations. EMIS announced a final dividend of 16p, which is up 3% on 2019. It takes the full year payment to 32p per share.
The shares fell 2.0% following the announcement.
EMIS provides software to GPs and pharmacies, helping them manage practices and keep patient records.
Its products are right at the heart of the UK's coronavirus response, and there's been some disruption to onboarding new customers during lockdowns. But generally things have continued to tick along as usual this year. Although the group is making certain services available 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, 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 should be 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 increase the dividend. The shares currently offer a prospective yield of 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, 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 shares have performed better than the wider market in the last 12 months and as a result the company now trades on a PE ratio some way above the long term average. We suspect that's why the market was a little disappointed by full year results, meeting expectations isn't always good enough if the valuation's demanding.
EMIS key facts
- Price/Earnings ratio: 20.7
- Average Price/Earnings ratio since listing: 19.6
- Prospective yield: 3.1%
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.
Full year Results
EMIS Health, which serves NHS customers, saw revenue rise to £107.8m, from £100.9m. There was increased demand for hardware because of the need for mobile-working during the pandemic. Combined with lower operating costs, underlying operating profit rose 8% to £25.1m.
Of market share, the group said: "EMIS maintained its UK GP market leadership position with a market share of 57% (2019: 57%). The Group holds a joint market leadership position in Acute A&E at 21% (2019: 23%) and the number two market position in community at 20% (2019: 21%)."
Revenues in EMIS Enterprise were held back by a weaker market and a lack of significant licence deals. Comparisons compared to this time last year are also tougher, and there was a delay in implementing some services because of Covid. As a result, revenue fell 12% to £51.7m and underlying operating profit was £15.7m (2019: £17.5m).
During the year, the first products from the EMIS-X Analytics suite were launched. EMIS-X is a cloud analytics tool aimed at analysing large sets of healthcare data.
EMIS bought Pinnacle, a platform which helps GPs triage and refer patients, for a cash consideration of £2.9m. The acquisition contributed £2.2m to group revenue over the year.
Net capital expenditure was much lower at £0.4m, compared to £5.6m, as purchases were largely offset by sales of head office equipment. EMIS had net cash of £53.0m at the end of the year, which was up £21.9m.
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.
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