Business Overview
Craneware Plc is a United Kingdom-based company, which is engaged in the development, and improvement for the United States healthcare industry. The company mainly provides five solutions i.e. Patient Engagement, Charge Capture & Pricing, Coding Integrity, Cost Analytics, and Revenue Collection & Retention. Craneware is the leader in automated value cycle solutions that improve financial performance for healthcare organizations. Craneware’s solutions help hospitals and other healthcare providers for patient care services. Craneware’s Cost & Margin Analytics solutions allow healthcare providers to profitability analysis across patient episodes and provider department performance. These solutions allow providers to compliantly optimize reimbursement, gain true costs and margins visibility, increase operational efficiency and minimize compliance risk. Craneware collaborates with US healthcare providers and assists them in planning, executing and monitoring value-based economic performance.

The Company will announce half yearly results ended 31 December 2019 on 3 March 2020.

Management

Will Whitehorn is the Chairman of the Group. He joined Craneware as Chairman of the Board on 1 January 2020. Keith Neilson is the Co-founder and Chief Executive Officer of the company. He plays a significant role in ensuring Craneware’s values and strategic vision are applied consistently throughout the business to deliver superior performance. He is a graduate from Heriot-Watt University. Craig T. Preston is the Chief Financial Officer. He takes care of the Group’s financial operations in both the United Kingdom and the United States. Prior to Craneware, Craig was group director of finance and company secretary at Intec Telecom Systems Plc.

Key Statistics



Top Shareholders
 
 

Company Process



(Source: Company Website)

The company’s operating process is mentioned above, according to which the company operates. In the initial step, the Group discovers the data gaps across the healthcare domain and then converts these data into normalized data which would provide the actionable insights to the company. The Group then optimize the financial and clinical efficiency and provides solutions to its partners and clients.

Solutions Provided by the Group


(Source: Company Website)

Craneware’s Trisus® platform combines revenue integrity, cost management and decision enablement into a single cloud-based platform.

Charge Capture & Pricing

This tool eliminates variances in data and prevents revenue loss. It aligns all the data sets with automated reviews to eliminate disparity which could result in loss or incorrect data and revenue.

Patient Engagement

This tool serves instant access to medical necessity requirements, from admissions to medical records and external practices. It also simplifies the process of providing patient bill estimates.

Claims Analytics

It imports the claim and remittance data and also helps to quick response to regulatory changes.

Revenue Recovery & Retention

This helps in finding the root causes leading to denials.

Cost and Margin Analytics

This tool integrates clinical, financial and operational patient information to determine the actual costs to each patient.

Value Based Economics




(Source: Company Report, Company Website)

The above chart gives a brief overview of the Group’s value-based economics. All related segments such as Electronic Health Records, Value Cycle Solutions, Health Information Management Systems (PAS) and Clinical Solutions are interlinked to each other, generating the value for the health care industry and improving the performance of healthcare companies.

Partners and clients


(Source: Company Website)

The Group has partnered with many hospitals to help and improve their financial performance. Southampton Hospital recorded an increase of 5 per cent and then 9 per cent increase in cash collected over the two years. Firelands identified net revenue of USD 2 million over a 18 months period. Jupiter Medical Center increased the validity of 12,649 CDM line items from 36% to 99.89% and identified and fixed potential compliance issues. OhioHealth identified 152 charge items missing HCPCS codes valued at previous YTD spend of $893,292.

Business Strategy

The company’s strategy is to continue to build its market-leading position in revenue cycle solutions and expand its product suite coverage of the value cycle. The Group is focussed to expand its products range and manage costs of the healthcare companies which would benefit them to improve their performance. The company is building products which could benefit healthcare companies. Around a quarter of all US hospitals are existing Craneware customers.

Industry Overview

The aging of the U.S. population and US fee for service culture would drive the cost of healthcare higher in the near term. Healthcare expenditures in the United States are expected to exceed from 18% of their GDP to reach 20% by 2021. Health care spending is expected to rise at a CAGR of 5 per cent over 2019-2023 as compared to 2.7 per cent growth in the year 2014-2018. On the global level, healthcare spending would likely to remain at around 10.2 per cent through 2023 (Source: Global Healthcare Outlook 2020 report, Deloitte).

Key drivers impacting financial sustainability in health care are:
 

(a) Expanding and aging populations
(b) Increasing number of people with chronic conditions
(c) Costly infrastructure and investment in Medtech
(d) Rising labour costs and staff shortages
 

What can be done
 

(a) Adopting value-based care
(b) Establishing and expanding universal health care systems
(c) Pricing controls on pharma and medical technology device
(d) Investment in Population Health Management
 

Recent News

On 24^th February 2020, the company announced the appointments of Alistair Erskine and David Kemp to the Board as Independent Non-Executive Directors.

Trading Update - H1 FY2020 (31^st December 2019)

The Group has delivered a strong new sales performance in the first half of the financial year, with new sales over 30% ahead of H1 FY19, due to an increased number of contracts being secured. The company reported good sales of its Trisus® platform, as well as its core product, Chargemaster Toolkit. The number of hospitals renewing their contracts in the period was above the last year. The Group expected revenue for H1 FY20 at similar levels as compared to the same period last year (H1 FY19: $35.8m), which is in line with management expectations. The company expected 10 per cent growth in adjusted EBITDA (H1 FY19: $11.6m). The Group maintained healthy cash reserves.

Financial Highlights – Financial Year 2019 (30 June 2019, USD, thousand)


(Source: Interim Reports, Company Website)

In the financial year 2019, the company’s revenue grew by 6 per cent to USD 71,401 thousand as compared to USD 67,067 thousand in the fiscal year 2018. During the period, gross profit increased to USD 67,007 thousand against USD 63,660 thousand in the fiscal year 2018. In FY2019, operating profit declined to USD 18,004 thousand versus USD 18,692 thousand in FY2018 due to increase in operating expenses. During the period adjusted EBITDA increased by 11 per cent to USD 23,996 as compared to USD 21,611 thousand in the fiscal year 2018. Profit before tax was recorded as USD 18,322 thousand against USD 18,933 thousand due to $1.2m one-off costs related to a significant proposed acquisition. Total comprehensive income was USD 15,013 thousand as compared to USD 15,787 thousand in the fiscal year 2018. The company’s reported renewal rate remained above 100% by dollar value. Operating cash conversion was at 63 per cent of adjusted EBITDA. Cash at the end of the fiscal year 2019 was $47.6m (FY18: $52.8m). The company paid $8.5m to shareholders in the form of dividends. The Group declared final dividend of 15.0p (19.05 cents) (FY18: 14.0p, 18.48 cents) per share, giving a total dividend for the year of 26.0p (33.02 cents) (FY18: 24.0p, 31.68 cents) per share.

Key Performing Indicators



(Source: Interim Reports, Company Website)

The revenue of the company grew to USD 71.4 million in FY2019 from USD 44.8 million in FY2015, reflecting a growth of 12.36 per cent on a CAGR basis.

The adjusted EBITDA of the company grew to USD 24 million in FY2019 from USD 14.4 million in FY2015, giving growth of 13.62 per cent on a CAGR basis.

The basic adjusted EPS of the company grew to 63.3 cents in FY2019 from 37.8 cents in FY2015, giving growth of 13.75 per cent on a CAGR basis.

Revenue Outlook (FY20 - FY22)



(Source: Interim Reports, Company Website)

The Group expected that the revenue from renewals will increased from USD 7.3 million in FY2020 to USD 19.9 million in FY2021. The revenue from renewals in FY2022 is expected to be USD 32 million.

Dividend Performance



(Source: Interim Reports, Company Website)

The company consistently distributed dividend to its investors. The dividend has increased from 14p in the FY2015 to 26p in the FY2019, giving growth of 16.73 per cent on a CAGR basis.

Financial Ratios 
 
 

The reported EBITDA margin in FY19 was 31.90 per cent against the industry median of 28.80%. The reported operating margin was 25.2 per cent for the FY19. Net margin reported was 21 per cent for the fiscal year 2019, higher from the industry median of 15.9%. Return on equity for the FY2019 stood at 26.90 per cent. On the liquidity front, Craneware Plc’s current ratio stood at 1.43x. On leverage front, the debt-equity ratio of the Craneware Plc’s was 0 as compared to the industry median of 0.33x, reflecting that the company is a debt free company.

Share Price Performance


Daily Chart as on 27^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 27, 2020, at the time of writing (before the market close, at 10:02 AM GMT), Craneware Plc shares were trading at GBX 1,950, down by 0.26 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 3,248/GBX 1,700. The group’s stock is reflecting significantly higher volatility as against the benchmark index based on the company’s beta of 1.457. The outstanding market capitalisation was around £528.56 million, with a dividend yield of 1.33 per cent.

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology

Method 1: EV to EBITDA Approach (NTM)



To compare Craneware Plc with its peers, EV/EBITDA multiple has been used. The peers are Biancco Technology Group Plc (NTM EV/EBITDA was 18.88), Mentice AB (NTM EV/EBITDA was 53.73), ContextvVision AB (NTM EV/EBITDA was 26.07) and Compugroup Medical SE (NTM EV/EBITDA was 17.29). The Average of EV/EBITDA (NTM) of the company’s peers was 29x (approx.)

Method 2: Price to Earnings Approach (NTM)



To compare Craneware Plc with its peers, P/E multiple has been used. The peers are Biancco Technology Group Plc (NTM P/E was 45.09), iomart group Plc (NTM P/E was 19.66), First Derivatives Plc (NTM P/E was 30.05), Instem Plc (NTM P/E was 22.87), Mentice AB (NTM P/E was 96.88). The Average of P/E (NTM) of the company’s peers was 42.91x (approx.).
 

Valuation Metrics

 
(Source: LSE)

As on 31^st January 2020, the P/E ratio of the Craneware Plc’s was 43.8 which was at 5^th position from its ten peers. The company’s EV/EBITDA multiple is 26.7x which was at 4^th position from its eleven peers.



(Source: LSE)

This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that’s driving ROE. In 2020, the ROE is increasing as compared to its peers.

Craneware V/S FTSE-AIM Price – 2 Years


(Source: Thomson Reuters)

In the last two years, Craneware Plc share price has delivered 8.46 per cent return as compared to negative 14.47 per cent return of FTSE-AIM index, which shows that the stock has outperformed the index during the last 2 years.

Dividend Yield


(Source: Thomson Reuters)

Craneware Plc has a dividend yield of 1.33 per cent which is slightly lower than the industry dividend yield of 3.14 per cent, however sector dividend yield is zero.

Craneware V/S Industry V/S Sector – 2 years


(Source: Thomson Reuters)

In the last two years, Craneware Plc share price surged by 8.46 per cent which is significantly higher than the industry growth rate of negative 13.57 per cent and sector growth rate of negative 10.04 per cent.

Craneware Total return- 2 years


(Source: Thomson Reuters)

In the last two years, Craneware has delivered a total return of 10.71 per cent while the FTSE All share index has delivered a total return of 6.02 per cent.

Competitive Benchmarking




Source: Thomson Reuters

Currency Chart (GBP VS USD)


The current currency exchange rates for GBP to USD is 1.2927.

Currency Chart (EURO VS GBP)


The current currency exchange rates for Euro to GBP is 0.8505.

Risk Factors

Fluctuation in foreign exchange ratescould affect the profitability of the company. Failure in cybersecurity and critical data breach could hamper the operations as well as the reputation of the company. Uncertainty in macroeconomic and political conditions could affect the business of the company.

Conclusion

The company has reported a decent financial performance during the financial year 2019. The group is anticipating an increase in revenue from renewals in the next three years. The Group provides a strong platform for the healthcare industry which could improve the performance of them. The company has the strong operating margins, healthy cash balances and a growing sales pipeline. The ongoing transition to value-based care is a powerful underlying driver which could drive the growth of the company's business and benefit the healthcare industry.

The revenue of the company grew to GBP 71.4 million in FY2019 from GBP 44.8 million in FY2015, reflecting a growth of 12.36 per cent on a CAGR basis. The company consistently distributed dividend to its investors. The dividend has increased from 14p in the FY2015 to 26p in the FY2019, giving growth of 16.73 per cent on a CAGR basis.

Based on the decent prospects and supported by valuation undertaken using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 1,940 (as on 27th February 2020 before the market close at 9:20 AM GMT) with lower double-digit upside potential based on 29x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.) and 42.91x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
*Currency exchange rate taken for 1 US Dollar = 0.7764 GBP.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.