Craneware PLC (LON: CRW) – Total visible revenue of around USD 206.4 million for three years period ending June 2023

Craneware PLC is an FTSE AIM 100 Index listed company, focused on the licensing and development of computer software for the healthcare industry. CRW is serving around one-third of registered hospitals in the U.S. It is a market leader in the value cycle solutions that assist hospitals in enhancing their financial performance. The Company is headquartered in Edinburgh, Scotland, with offices in Atlanta and Pittsburgh. It currently employs around 350 staff.

(Source: Company report)

Recent Trend of dividend payments

The Company had paid an interim dividend of 12 pence per share with respect to H1 FY21 on 15 April 2021, while the ex-dividend date was 18 March 2021. Moreover, the interim dividend had shown a growth of around 4% from H1 FY20 levels,

Growth Prospects and Risk Assessment

• Increased popularity of Trisus Application – The Trisus solutions had represented almost 16% of new sales achieved during H1 FY21. Moreover, the Company would further invest in the expansion of the Trisus (cloud-based Financial and Operational performance platform) to explore new market opportunities.
• Transition to cloud-based platforms – The Company would migrate Chargemaster Toolkit and Pharmacy ChargeLink into cloud-based Trisus Chargemaster and Trisus Pharmacy. Furthermore, the full Trisus Chargemaster solution would be expected to complete by the end of calendar 2021.
• Acquiring new customers – CRW would aim to acquire non-overlapping customers, which will create further cross-sale opportunities. Moreover, the Company had reported new sales growth of around 30% during H1 FY21 as compared to H1 FY20 with increased contribution from Trisus Application.

Key Risks

• Competitive Landscape – Increasing competition from existing players and new entrants may significantly reduce the market opportunities for CRW.
• Ongoing market consolidation in US Healthcare – CRW’s market is dominated by larger hospital networks. Thus, any failure in product quality may hamper the business operations.
• Intellectual property risk – Any failure to protect and register Intellectual property rights may adversely impact the CRW’s future business performance.
• Regulatory Environment – Since CRW is operating in highly regulated industry and markets, any violation of compliance may lead to reputational damage and loss of business.

Now, we will analyse the Key Fundamental & Shareholders Statistics of Craneware PLC.

Liontrust Investment Partners LLP is the most significant shareholder as it holds nearly 3.75 million shares as of 31 March 2021.               

H1 FY21 Financial Highlights (for the six months ended 31 December 2020, as on 01 March 2021)

(Source: Company result)

• The revenue grew by around 6% to USD 38.0 million during H1 FY21, while it was USD 35.9 million for H1 FY20. Moreover, new sales went up by more than 30% during H1 FY21 as compared to an equivalent period of the prior year.
• On the profitability aspect, the adjusted EBITDA rose by 5% and the profit before tax grew by about 3% during H1 FY21.
• With regards to the financial position, the Company had a cash position of around USD 50.7 million as of 31 December 2020, while it was USD 45.0 million as of 31 December 2019.
• Moreover, CRW had increased R&D investment from USD 10.3 million during H1 FY20 to USD 11.6 million for H1 FY21 to capitalize on growing market opportunities.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 03 June 2021, at 10:00 AM GMT, CRW’s shares were trading at GBX 2,365.00, up by around 0.21% from the previous day closing price. Stock 52-week High and Low were GBX 2,830.00 and GBX 1,335.00, respectively.

On a weekly chart, the stock price is trading above a downward sloping trend line breakout and getting support from an upward sloping trend line, indicating the probability for an upward direction in the stock. The MACD line trading above the centerline and the trend-following indicators 21-period SMA and 50-period SMA sustaining below the current market price, further supporting a positive stance.

Over the last five years, CRW’s stock price had delivered a positive return of ~201.13%, while the FTSE AIM 100 index (benchmark index) had produced a return of about 76.38%, and FTSE All-Share Medical Equipment & Services (benchmark sector) had generated a return of around negative 2.42%. 

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative) 

Peers used in the valuation methodology (EV/NTM Sales)

Business Outlook Scenario

Craneware had shown resilient top-line and bottom-line business performance during H1 FY21. Moreover, the Company has a strong sales pipeline for FY21 and beyond, as it had total visible revenue of around USD 206.4 million for three years period ending June 2023. The Board remained cautious of the external challenges related to the macro-economic environment but shown confidence due to the positive business performance. Furthermore, the Company had managed to provide FY21 financial guidance. CRW had anticipated revenue ranging from USD 71.5 million to USD 76.0 million and adjusted EBITDA to fall between USD 23.7 million and USD 27.0 million during FY21. Overall, the Company would continue to seek further market opportunities to enhance its sales pipeline and drive long-term growth for the shareholders.

On the technical chart, the next important support level is GBX 2,020.00.

Considering the expansion of Trisus Application, consistent revenue and profitability growth, interim dividend growth, cash-generative business model, robust financial performance, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Craneware at the current price of GBX 2,365.00 (as on 03 June 2021 at 10:00 AM GMT), with lower-double digit upside potential based on 12.82x EV/NTM Sales (approx.) on FY22E sales (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

* The dividend yield is subject to change as per the stock price movement.

*All forecasted figures and Peer information have been taken from REFINITIV.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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