Join our community of smart investors

Emis ups dividend despite earnings dip

The healthcare software group’s cash flows were knocked by deferred VAT repayments
Emis ups dividend despite earnings dip
  • Aim-traded Emis continues to deliver on its GP IT Futures contract
  • The company’s recurring revenues edged up slightly during the first half

“The future of the healthcare sector is connected care”. That’s the view of Emis (EMIS), a company for which such an outcome would be highly beneficial.

AIM-traded Emis specialises in healthcare software, operating across two main divisions – ‘Emis Health’ and ‘Emis Enterprise’. The former unit supplies integrated care technology to the NHS across primary, community, acute and social settings. The latter unit focuses on the business-to-business technology sector within healthcare, including medicine management.

Management believes that its connected care strategy “positively reflects the needs of the healthcare market as it emerges from Covid-19, with an increased focus on data capabilities”. Its clinical systems have already supported the UK’s testing and vaccination programmes during the pandemic.

In any case, Emis’s numbers for the six months ending 30 June suggest that the company is on a strong footing to face the unpredictability of the pandemic-steeped months ahead. Recurring revenues ticked up 4 per cent to £65.8m, constituting almost four-fifths of the total top line. Such repeat sales should continue to improve the group’s visibility.

Admittedly, operating profits edged down 2 per cent to £16.3m – but Emis said that this reflected the unwinding of coronavirus-related VAT deferrals as well as ongoing investment in growth.

The repayment of £7.3m in VAT deferred from the first half of 2020 also hit Emis’s cash flow, with operating cash falling more than a half to £17m. Emis also flagged a delay in some short-term debtor payments which it received just after the reporting period end. The group had available bank facilities of £15m as of June, with net cash of £48m.

In turn, bosses have opted to hike the half-year dividend by a tenth to 17.6p a share. That improvement was ahead of Numis’s forecast, which the brokerage reckons is a “sign of longer-term confidence”. To that point, management said that half-year trading was slightly ahead of their guidance and that there is a “clear line of sight” to meet second-half expectations.

Numis anticipates adjusted pre-tax profits of £40.9m in 2021 with EPS of 51.4p, up from £39.6m and 50.4p in 2020.

Emis is continuing to deliver its GP IT futures contract in the background. And while it is impossible to gauge the onwards path of Covid-19 – nor the effects this might have on routine medical care – a forward price-earnings multiple of 25 times (based on FactSet consensus estimates) against a five-year average of 20 times doesn’t seem too much to ask. Buy.

EMIS (EMIS)    
ORD PRICE:1,372pMARKET VALUE:£ 863m
TOUCH:1,366-1,372p12-MONTH HIGH:1,480pLOW: 955p
DIVIDEND YIELD:2.4%PE RATIO:30
NET ASSET VALUE:192p*NET CASH:£39.8m
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
202078.117.722.916.0
202183.516.420.817.6
% change+7-7-9-
Ex-div:07 Oct   
Payment:04 Nov   
*Includes intangible assets of £81m or 129p a share

Last IC view: Buy, 1,126p, 18 Mar 2021