EMIS Group PLC (LON: EMIS) – Delivered the tenth consecutive year of final dividend growth during FY20.

EMIS Group PLC is an FTSE AIM UK 50 Index listed Company, which provides connected healthcare software and services. The Company has two reportable business segments – EMIS Health & EMIS Enterprise. EMIS Health supplies integrated technology to NHS (“National Health Service”) related to primary, community, acute and social care. EMIS Enterprise encapsulates services in the business-to-business technology sector within the healthcare market. Presently, it is a major provider of healthcare software in the United Kingdom.

On 13 July 2021, EMIS expects to release half-year trading update for the six months ending 30 June 2021.

(Source: Company presentation)

Recent trend of dividend payments - EMIS will pay a final dividend of 16.0 pence per share for FY20 on 14 May 2021, up by around 2.56% from the prior year. Moreover, the ex-dividend date was 15 April 2021. EMIS had shown a final dividend growth for the tenth consecutive year during FY20. Currently, the total FY20 dividend stood at around 32.0 pence per share, while it was 31.2 pence per share paid during FY19.

Growth Prospects and Risk Assessment

• Acquisition of Pinnacle – EMIS had completed the acquisition of the Pinnacle during March 2020. The Company had delivered decent revenue growth for the software subscription and support during FY20, boosted by the inclusion of the acquired Pinnacle revenues. Meanwhile, the product was deployed in almost 1,400 vaccination centres and had supported approximately 14.90 million vaccinations as of 01 March 2021.
• EMIS-X Analytics opportunities in enterprise markets – EMIS-X Analytics is a high-performance cloud analytics suite designed to curate, aggregate and query large healthcare data sets at speed and scale. The Company had already launched its first products, Explorer, and Visualiser, from the suite during 2020.
• EMIS Partner programme – The EMIS partner programme had strengthened with the addition of Companies like Arc Health during 2020. Moreover, the number of partners offering products that interoperate with EMIS clinical systems had increased to 143 during FY20, while it was 113 during FY19. The programme has an increased focus on the digitisation of healthcare.
• Advancement of Patient Access app and website – EMIS had updated the progress regarding an increased usage of the healthcare services provided by the Patient Access app and website. Moreover, the registered users had increased to 12.0 million by the end of February 2021. Furthermore, Patient Access will be launching its new Smart Pharmacy service in 2021.

(Source: Company presentation)

EMIS had shown lower net debt to equity of around 0.10x as compared to 0.50x for the Software & Computer Services industry. Moreover, the dividend yield of EMIS remained higher than the corresponding multiple of the Software & Computer Services industry, illustrating the Company’s ability to generate higher returns for shareholders as compared to the industry.

Key Risks

• Software Development - The technical or physical failure of the Group’s software could lead to the cancellation of contracts by high-profile public or B2B clients.
• Clinical Safety – EMIS is exposed to the risk of clinical harm to patients in case the software used by healthcare professionals fail to provide accurate, reliable, and timely data.
• Information governance and cyber-security – EMIS is also exposed to cybersecurity risk regarding breaching of data as it holds significant volumes of confidential and sensitive personal data, particularly in the areas of hosting patient care records and processing employee data.

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of EMIS Group PLC

Recent Developments

On 06 May 2021, EMIS updated that it had delivered a resilient trading performance in FY21 till date as it had maintained the reputation of having a leading position in the specialist market boosted by high levels of recurring revenue and a robust balance sheet.

FY20 Financial Highlights (for the twelve months ended 31 December 2020, as of 18 March 2021)

(Source: Company result)

• The total revenue remained flat at £159.5 million during FY20, while the recurring revenue grew by 4% to £130.0 million, representing around 82% of the total revenue.
• On the profitability front, EMIS had shown a growth of around 33% to £35.8 million in the reported operating profit during FY20.
• With regards to the financial position, the Company had shown a robust growth of around 70% in net cash position from £31.1 million as of 31 December 2019 to £53.0 million as of 31 December 2020.
• The reported earnings per share stood at 48.1 pence per share during FY20.

Financial Ratios (FY20)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 13 May 2021, at 09:36 AM GMT, EMIS’s shares were trading at GBX 1,192.00, down by around 0.33% from the previous day closing price. Stock 52-week High and Low were GBX 1,276.00 and GBX 955.00, respectively.

EMIS' prices are trading above the rising trend line support level at GBX 1,095.00, indicating an upside direction of the stock. On the weekly chart, the stock price is trading above 50-period SMA, which also acts as a crucial support zone. Furthermore, the momentum oscillator RSI (14-period) is trading at ~59 levels, indicating the possibility of an upside movement.

In the last six months, EMIS’s stock price has delivered a positive return of ~22.04%, and it has outperformed the FTSE AIM UK 50 index with a return of about 17.58%. 

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

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

Business Outlook Scenario

With an improvement in the Covid-19 situation in the United Kingdom, EMIS remained optimistic regarding growth by delivering efficient and innovative technology platforms to the NHS, the private sector, and patients. Moreover, EMIS would accelerate the investments towards the progress of the product roadmap and improvement in the internal systems. Furthermore, the EMIS-X Analytics suite would enable the Company to grow the business over time with opportunities in both the NHS and life sciences. The flexible business model of EMIS would easily adapt to proposed changes to NHS organisational structure. Overall, EMIS had projected to return to growth in 2021, driven by lucrative opportunities provided by new products developments as it would accelerate the growth trajectory in FY22 and beyond.

On the technical chart, the next important support level is GBX 1,019.00.

(Source: Company presentation)

Considering the successful integration of Pinnacle, strong balance sheet, consistent growth in dividend, bright prospect of EMIS-X Analytics, the high proportion of recurring revenue, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on EMIS Group at the current price of GBX 1,192.00 (as on 13 May 2021 at 09:36 AM GMT), with lower-double digit upside potential based on 26.23x Price/NTM Earnings (approx.) on FY21E earnings per share (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).

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

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

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