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Is the EMIS share price a good buy?

Healthcare software provider EMIS Group (LSE:EMIS) delivered positive interim results at the end of August. The company is growing its revenue and I like what I see, but dealing with NHS contracts will never be plain sailing.

EMIS Group is a leading provider of electronic patient record systems and software to GP practices, hospitals, pharmacies and healthcare centres.

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Its adjusted operating profit for the period was £18.2m (2018 H1: £16.8m) and CEO Andy Thorburn called the results encouraging. Group revenue was up by 7% to £79.8m and recurring revenue by 1% to £60.2m, representing 76% of the firm’s total revenue.

Revenue growth was partly offset by investment in development costs for the new EMIS-X software platform. EMIS-X is currently being tested in-house but is expected to roll out during 2020 with an upgraded GP application in 2021.

EMIS Health

Is EMIS-X likely to save the NHS money? In the long term, I imagine it would, and if it works successfully, it will ensure EMIS continues to do well. However, I’m sceptical how seamlessly it will be implemented. Digitising the NHS is a massive undertaking.

The NHS IT system has been a bone of contention for everyone involved since the WannaCry cyber attack in 2018 and debate around NHS and IT has raged for longer than that. There’s no doubt patients, staff and the government would like to see a sophisticated, secure and efficient IT system in place. However, with so many people involved, complex needs to be met and costs to consider, this is no mean feat.

EMIS Group has so far proved a worthy contender for providing a long-term solution. It has a 57% share in the UK GP market and its revenue stream has gradually been improving year-on-year. The company is further developing its range of software solutions and recently won two new contracts to deploy its Symphony A&E software. It also received five new orders for its Online Consult triage service that allows patients to seek support or access self-help advice.

Brexit NHS debate

The ongoing debate about whether a post-Brexit trade deal between the UK and US could further expose the NHS to US companies is also a consideration. There are billion-dollar American companies specialising in medical IT, so could EMIS Group, with its £667m market cap, be a potential takeover target for them?

EMIS news

In other EMIS news, the group has submitted a bid for the English ‘GP IT Futures’ framework renewal process. It is confident of its chances, but this is also vital to continued progress, as the contract applies to over a quarter of EMIS revenues.

This AIM-listed company has earnings per share of 36p and a trailing price-to-earnings ratio of 29. This relatively high ratio suggests investors have already priced in future growth, but its debt ratio is low at 40% and analysts are forecasting an 8% increase in the EMIS Group share price.

Senior management seems to stick around, and most have been in their positions for several years or come with extensive and relevant experience, such as divisional CEO Suzy Foster who previously ran the Microsoft healthcare business for four years. I’ll be surprised if it doesn’t win its latest GP framework bid and consider EMIS a Buy for an income portfolio as it offers a reasonable dividend yield of almost 3%.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Emis Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.