Craneware remains confident despite hospital slump

Costs outpaced revenue increases in approximately half of all US hospitals last year – and a competitive labour market is mostly to blame. These difficulties were visible in Craneware’s (CRW) profit figures for the six months to the end of last year.

According to the London-listed company, which develops and supplies software to the US healthcare industry, some 40 per cent of the country’s hospitals are now its customers. But the cost inflation seen in medical settings clearly meant that spending on external technology services had to be curtailed. 

Just under 80 per cent of new contracts sold in the first half of Craneware’s 2023 financial year were to existing customers. Revenues from the group’s professional services arm currently stand at around 8 per cent of total turnover – a significant drop from the 15 per cent that was normal prior to the pandemic.

However, management remains confident in the company’s ability to deliver the double-digit growth aims it set out in a January trading update. Analysts at Investec said that there is a “sequential uplift in group revenue/profit needed” to hit full-year targets – but that this is “consistent with last year’s H2 uplift”.

The shares have been struggling in the weeks since Craneware’s trading update and are currently close to their 52-week low. But FactSet broker consensus puts the company’s forward price/earnings ratio at 21 – meaning it’s not exactly a bargain at the moment. 

Bulls might note that Craneware’s Trisus software can help customers realise cost efficiencies, and therefore might be deemed essential as labour issues ease. We think the shares have some growth potential. A speculative buy.

Last IC view: Buy, 1,867p, 20 September 2022