EMIS Group PLC (LON: EMIS) – Well-positioned for growth in the medium term.

EMIS Group is a FTSE AIM UK 50 Index listed Company, which provides connected healthcare software and services. The Company’s brands include: EMIS Care, which serves with diabetic retinopathy eye screening; EMIS Health, which deals in clinical software; Patient.info, which is an online health platform; Egton, which caters to social sector with non-clinical products and services.

The Company was formed in 1987 as Egton Medical Information Systems and got listed on the AIM market in 2010. Presently, it is a major provider of healthcare software in the United Kingdom. It supplies intelligent analysis software and offers front line technology that doctors rely on to manage patient care. It generates revenue by offering software and software licences, hosting services, business to business services in healthcare, and other support services.

The upcoming ex-dividend date for the interim dividend is 8 October 2020, and the payment date is expected to be 5 November 2020.

 (Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

EMIS Group is focused on providing innovative solutions for the NHS and business-to-business healthcare industry, which would drive improvement in better patient outcomes and healthcare efficiency. The Company has a robust and resilient business model with 78% recurring revenue and leading positions in the key healthcare markets. It has a nine-year track record of increasing dividend by 10% year-on-year, which underpins significant growth in revenue and adjusted profits over the years.

(Source: Refinitiv, Kalkine Group)

Presently, the Company has a strong balance sheet with £44.1m in net cash and carrying no debt obligation. Moreover, there are over 10,000 healthcare organisation that relies on EMIS’ clinical systems daily, and 45 out of 191 Clinical Commissioning Groups use EMIS Health systems. Furthermore, the Group is continuously investing in digital capabilities to ensure that it remains at the forefront of the NHS modernisation agenda. Also, the launch of new EMIS-X Analytics (EXA) application would provide deeper and faster insight into healthcare data.

Regarding the risk factors, the Company’s performance is subject to various risks and uncertainties. It is exposed to the financial risk associated with liquidity issues, credit risk amid recessionary economic conditions, and the risk of fluctuating interest and exchange rates. The widening demand-supply gap of skilled professionals can have detrimental consequences in 2020 and beyond. The global financial crisis can lead to a limited funding opportunity. Moreover, the Brexit uncertainties can lead to trade barriers, shortage of skilled labour supply, and currency volatility. 

Industry Outlook Dynamics

As per the report from the Grand View Research, the global healthcare IT market size is expected to grow at a CAGR of ~10.3% from 2019 to 2027 to be valued nearly US$147.3 billion in 2027 from the market size of US$74.2 billion in 2019. The adoption of healthcare IT systems has gained significant momentum over recent years, and it is expected to grow even further. The key factors that would work as catalysts are –

• Growing demand for preventive care.
• Increasing demand for curbing healthcare costs and workflow efficiency.
• Ongoing improvements in network infrastructure.
• Rise in technological advancements (with IoT, AI, and bigdata) to improve IT infrastructure.
• Increasing the geriatric and pediatric population.
• Higher smartphone penetration.

Key Fundamental Statistics

Key Shareholders Statistics

Recent Developments

On 28 September 2020, the Company has once again been shortlisted for the “Best Investor Communication” category, and also been shortlisted for the “AIM Corporate Governance Award” category. 

On 6 May 2020, EMIS Group collaborated with the Royal College of General Practitioners and Nuffield Department of Primary Care for the treatment of Coronavirus.

Key Performance Indicators

(Source: Company Website)

Business Segments (from continuing operations)

(Source: Company Website)

Financial Highlights (for the six months ended 30 June 2020 - H1 FY20, as on 9 September 2020)

(Source: Company Website)

• The Company’s revenue and adjusted operating profit were slightly lower for H1 FY20, while the recurring revenue (+5%), reported operating profit (+38%) and cash flow from operations (+23%) were increased as compared with the corresponding period of the last year.
• The reported basic and diluted earnings per share (EPS) from continuing operations were increased to 22.9 pence and 22.8 pence, respectively (H1 FY19: 15.7 pence and 15.6 pence, respectively).
• The Board has declared an interim dividend per share of 16 pence, an increase of 3% year-on-year. The interim dividend was payable on 5 November 2020 to shareholders on the register at the close of business on 9 October 2020.
• Cash generated from operations for H1 FY20 was £36.6 million (H1 FY19: £29.8 million), with a gross capital expenditure of £0.9 million (excluding capitalised development costs).
• On 30 June 2020, the net cash increased by ~65% year-on-year to £44.1 million, with available undrawn bank facilities of £30 million committed until June 2021.

Operational Highlights (H1 FY20): Robust business model with high recurring revenue

• EMIS Group had launched the new EMIS-X Analytics application and developed new Patient marketplace services (in the UK).
• In March 2020, EMIS Enterprise has strengthened the position through the acquisition of Pinnacle. This acquisition will provide new services more quickly to pharmacy customers.
• EMIS Health has maintained the UK GP market leadership position with a 57% of market share.
• In the community market, EMIS Health retained the number two market position in the
• first half of 2020. While in acute A&E, the Company has maintained the market leadership position.
• In community pharmacy, EMIS Enterprise has maintained the market share at 37% (31 December 2019: 37%). In hospital pharmacy, EMIS Enterprise has maintained the number two market position with a market share of 37% (31 December 2019: 35%).

Financial Ratios - Strong Profitability Margins versus the Industry Median

Reported profitability metrics for the first half of 2020 were higher against the industry median, reflecting higher revenue generated and better control over expenses as compared to the industry. Also, the Company has reported an EBITDA and Pre-tax margin above 20% consistently from the last three years. On the liquidity front, EMIS Group Plc’s current ratio was lower than the industry median of 1.41x, but it has sufficient liquidity to meet the short-term obligations and has robust liquidity profile to tackle the uncertainty due to Covid-19 outbreak.

Share Price Performance Analysis

 (Source: Refinitiv, Kalkine Group)

On 1 October 2020, at the time of writing (before the market close, at 10:44 AM GMT+1), EMIS Group Plc shares were trading at GBX 1,036.00, down by 0.38% against the previous day closing price. Stock 52 week High and Low were GBX 1,250.00 and GBX 722.00, respectively. From the technical standpoint, 14-day RSI (~40 level) is currently supporting an upside move, which means the stock price could increase in the short term.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (NTM Price/Earnings) 

 (Source: Refinitiv, Kalkine Group)

Business Outlook Scenario

EMIS Group has maintained the market-leading positions in all healthcare markets with a resilient business model. It benefits from strong recurring revenues and is well placed to facilitate the NHS's ambition for healthcare technology initiatives. It has strengthened the EMIS Enterprise with the acquisition of Pinnacle in March 2020 to serve community pharmacy customers better. Therefore, it is well-positioned for growth in the medium term. The progressive transition to EMIS-X-based technology shall provide new opportunities with upgrades to EMIS Web. Moreover, it has significant cash resources and bank funding alongside its organic growth strategy, to build both the scale and capabilities in existing and adjacent markets.

 (Source: Presentation, Company Website)

Considering the strong recurring revenue, decent business growth rate trajectory, robust business model and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on EMIS Group at the current market price of GBX 1,036.00 (as on 1 October 2020, before the market close at 10:44 AM GMT+1) with lower double-digit upside potential based on 26.95x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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