Emis Group makes steady progress

The future of medical care is in data and connected services. If doctors are able to upload patient information onto a connected system this enables patients to easily move between GPs, but it also creates a trove of data that can be analysed to help improve patient outcomes. Healthcare software company Emis Group (EMIS)  is making this a reality through its ‘Emis Health’ and ‘Emis Enterprise’ products.

Emis Health provides integrated care technology across the NHS. Revenue for ‘Health’ was flat for the year at £108mn but a better revenue mix – selling less low margin hardware – meant that the adjusted operating margin increased by 1.1 percentage points to 24.2 per cent. Currently over half of English GPs run their patient records using this technology.

Emis Enterprise is a business-to-business product that aides medicine management at pharmacies and helps research in the life sciences sector. Revenue increased 17 per cent to £60mn, thanks in part to relatively weak comparators as Covid-19 restrictions limited growth last year.  

Overall group revenue rose a modest 5.4 per cent, but management will be pleased to see recurring revenue rise 4 per cent to £135mn. Recurring revenues now make up 80 per cent of the total, which gives investors good top-line visibility.

A slight concern is that cash generated from operations fell from £64.1mn to £50.1mn. A 9 per cent rise in wages offset the increase in revenue meaning that operating profit was flat at £35.8mn. Increases in working capital then led to the drop in cash flow.

However, management still raised the dividend by 10 per cent. Even with the increased working capital, cash conversion remains strong. Broker Numis is forecasting a healthy 2023 free cash flow yield of 4.9 per cent.  

Growth isn’t exceptional given that its well established tech, but strong recurring revenues and good cash conversion means there is little chance of any untoward surprises in the future. The launch of the EMIS-X Analytics product has “been generating a lot of interest” and now has 27 customers, including Pfizer and Bristol Myers Squibb. This could be a source of growth to support the predictable cash flow.

A forward PE of 21.5 looks affordable for a company with such stable prospects. Consistency is a virtue that should come with a premium given the uncertainty circulating currently. Buy.

last IC View: Buy, 1,372p, 09 Sep 2021