EMIS Group looking to the future

The Leeds-headquartered venture is one of the leading providers of software to the NHS and has benefited of late from government reforms that have aimed to increase the amount of private sector involvement in the National Health Service. The company has a range of software solutions with its most notable being EMIS Web, the technology used by GPs to offer a ‘cradle-to-grave’ healthcare record of patients.

EMIS last year acquired pharmacy software concern Rx Systems in a deal worth £9.95 million that made a strong contribution to its latest results, in which it reported growth in both sales and profits. The firm is planning in particular to profit from plans to allow all NHS patients to access their medical records online and to abolish primary care trusts (PCTs) with its range of software already used by a considerable chunk of the NHS. EMIS boasts that it holds 53.4 per cent of the UK GP software market at a total of 5,506 sites. The company raised £50 million upon admission to AIM last March at 300p a share.

Strategy
EMIS’s flagship software is EMIS Web, which can be used by a variety of healthcare practitioners, with a specialist version available for GPs. It includes details such as how much of a particular drug a patient has used, with another screen showing what other treatments the patient may be receiving and a timetable of forthcoming treatments.

Another version of the software is EMIS Web for practice managers. This enables everyone from admin staff to the GPs themselves to examine factors such as the daily schedule of forthcoming appointments. A calendar is also available that shows forthcoming appointments by week or month with details of each patient.

There is also ‘EMIS Web for community’, which enables the sharing of data on patients with longer-terms conditions, while EMIS Web search and reports allows organisations such as GP consortiums to run searches on the practices in their local area. EMIS gives the example that it can be used to ‘help find diabetic patients that have visited secondary care’.

EMIS’s chief executive officer, Sean Riddell, is keen to note that EMIS Web ‘has an order book of 1,130 practices that have ordered upgrades’ and has had 107 ‘deployments’ to new practices in the first half of 2011. The company estimates that a total of 39 million patients have their care ‘supported’ by its software.

Riddell is keen to highlight the benefits of its software: ‘Traditionally, GP’s systems are only available during working hours, but healthcare is required 24/7. As a result, our technology uses a cloud system to stream data whenever it is required.’

The CEO argues that the NHS currently uses what he says is a ‘paper-heavy’ system. ‘For example, if you need to see a podiatrist, you must have a physical referral letter from your GP.’ As an alternative, EMIS’s technology ‘carries out the referral electronically’, with Riddell maintaining that in this system ‘the patient is at the centre and knows what is going on’.

In addition to EMIS Web, the company’s other software includes EMIS PCS, used to help GPs manage their patient lists. The software allows the GP to search through the database of patients, streamlining, for example, by disease. Particular patients also have details on what treatments they have received or should be taking.

EMIS also offers hosting services to GPs and clinics, enabling clinics to host their servers remotely. The company argues that this provides ‘reliable systems, fast access to data and data security’.

One site that Riddell is keen to speak about is patient.co.uk. The government, as part of its forthcoming reforms, is planning to allow every patient in Britain to access their medical records online, with the slogan ‘No decision about me without me’. EMIS itself runs the website, which contains a wide variety of information for patients and, says Riddell, receives ‘four million unique users per month’.

Management
Overseeing the action at EMIS is Mike O’Leary, the chairman who joined the board in March and who boasts of 20 years of experience at board level at listed companies. Prior to joining EMIS, O’Leary served as the chief executive of Marlborough Stirling, a business that supplied software to banks and life insurance companies and which was bought by Vertex in 2005.

O’Leary also worked as the chief executive at wireless concern Huon Corporation and was an executive director at IT venture Misys, where he ran its healthcare division. He currently holds non-executive directorships at floorings specialist Headlam Group and wireless device outfit Psion.

Leading the charge is Sean Riddell, who first joined the company in 1989 as a field support manager after graduating with a degree in psychology. EMIS declares on its website that Riddell has had ‘significant involvement’ in many of its ‘pioneering activities’, which include booking GP appointments using the internet or a mobile phone, viewing patient records online and the establishment of patient.co.uk. Riddell was appointed to the board in 1999 and became managing director of the business in 2006.

Counting the numbers is Philip Woodrow, who joined EMIS in 2008. Prior to joining the business, he served as a partner at accounting giant Baker Tilly, where he is described as having advised ‘corporate clients in relation to business planning and acting on company acquisitions, sales and reorganisations’. From 1988 to 1993 he served as secretary to the inspectors in what is described as a ‘major DTI [Department of Trade and Industry] investigation’. He started his career in 1965 having qualified at Smith & Hayward, the company that was to become Baker Tilly.

EMIS’s sole non-executive director is Robin Taylor, who joined just prior to its floatation. He previously worked as the finance director of Intec Telecom Systems, a fully listed billing and payments concern, joining Intec from YFD, a private business described as a ‘provider of financial director services’. He also worked as the finance director at ITNET, an IT business sold to support services giant Serco in 2004 for £235 million.

Prospects
Many of the plans for EMIS are focused on profiting from the forthcoming NHS reforms. For those unfamiliar with them – described by some as the biggest change to the National Health Service since its inception – they are worth a brief explanation.

The reforms, the work of the present health secretary Andrew Lansley, represent a raft of proposed changes introduced into Parliament under the Health and Social Care Bill 2011. They include the abolition of primary care trusts, to be replaced by consortiums of GPs, who are to have much greater responsibility for how money is spent, oversee spending and funding in particular areas and take control of 80 per cent of the NHS budget. Crucially for EMIS, the reforms are to see the NHS contract out services to private sector operators using NHS funds Riddell enthuses that EMIS will ‘fit well into the new plans’, noting that the government wants to get ‘more SMEs [small to medium-sized enterprises] to create products for the NHS’. In its interim results, the company remarked that the changes are ‘opening up new markets for the group’, giving the example that it had recently won a contract worth £1.8 million to supply a shared care record to a PCT in Cheshire.

In its most recent results, for the six months to June, EMIS reported an increase in profits from £7.8 million to £10.2 million on revenue that rose from £28.7 million to £35.46 million. Its net cash position grew from £10.5 million to £12.8 million while the interim dividend increased by 11 per cent from 5.6p to 6.2p.

In particular, there was strong growth in Scotland, which saw 117 installations of its software, with a further 150 deployments expected in the second half of 2011 and the first half of 2012. EMIS Web was rolled out to 107 GP practices, while the company noted that it is proceeding with its plans to develop an electronic health information system for the Australian Defence Force (the country’s military).

Valuation
For the year to December 2011, analysts at Evolution Securities are forecasting pre-tax profits to grow from £16 million to £20.3 million on sales of £74.1 million (2010: £62.4 million). Earnings per share are expected to grow from 19.4p to 22.4p. In 2012, profits of £22.6 million are pencilled in on sales of £80.1 million and earnings per share of 24.2p.

Though EMIS is certainly not lowly rated, the opportunity to benefit from further growth in the share price is an alluring one, with the shares having already seen a considerable rise since it joined AIM last March.

Furthermore, it is a dividend payer, with an increase of 9.8 per cent expected in 2011 from 11.2p to 12.3p a share. In 2012, a dividend of 13.6p is forecast. At the current price this offers a yield of 2.3 per cent on 2011’s dividend.

EMIS is a company that has surprised many with its excellent post-IPO performance at a time in which many of those connected to both the NHS and the software sector have faltered.

Its plans to profit from the part-privatisation of the NHS are likely to be of interest to potential investors and represent a number of opportunities for the group. Buy.