EMIS (AIM: EMIS) is a leading supplier of software and digital services to the NHS. It’s got a lot of things going for it, but a few challenges too – the main one being to generate growth in a tough environment for NHS funding.
The interims showed revenues ahead by just 1 per cent. EMIS has some big positions in the UK healthcare software market and management say that things are moving forward in most areas. For example its 56 per cent share in the UK primary care sector is up one point from the year end. In community pharmacies, where EMIS software manages prescriptions and inventory, the company’s 37 per cent share should rise to 50 per cent over the next couple of years as its product gets rolled out in the Lloyds Pharmacy chain. However the Acute Care sector has been a problem with a squeeze on hospitals’ discretionary spending. So there have been fewer opportunities for major upgrades or sales of new systems.
A key response to these conditions has been a restructuring programme that saw the loss of over 100 jobs. This is largely complete and is expected to save £3.5 million this year and £4.5 million in 2018. The programme was completed prior to Andy Thorburn joining as the new CEO in May, though he says he’ll continue to make further refinements to operating efficiency. These cost savings, along with 84 per cent recurring revenues, underpin a performance that Thorburn describes as ‘solid rather than spectacular’.
With a net cash position of £10 million and borrowing facilities of £60 million, there’s scope to grow by acquisition. The company is currently looking for bolt-on deals, where acquiring makes more sense than building something internally. However Andy Thorburn isn’t looking for anything ‘transformational’, at least at this stage. That leaves the shares looking high enough for now on a p/e of 21.