Image source: Getty Images
EMIS Group (LSE:EMIS) saw its shares jump in June after a takeover bid was accepted. Let’s take a closer look at the details, and decide if now is a good time to buy. FTSE AIM Stocks for my holdings.
Software for healthcare
EMIS is a UK-based software-as-a-service (SaaS) provider. It creates, sells and maintains a range of systems used by NHS and GP surgeries. Its best-known product is Patient Access, which allows the public to manage their healthcare needs.
At the time of writing, EMIS shares are trading at 1,890p. This time last year, the stock was trading for 1,392p, which means it has seen a return of 35% over the 12-month period. When the news of the auction broke in June, the shares immediately jumped nearly 50%, and have remained there ever since.
Delivered bid
In June, health services business Optum UK made a £1.24bn, or 1,925p per share, bid for EMIS. The offer was a 49% premium to EMIS’s closing stock price the day before the offer was announced. Since then, the AMIS board has approved the mandate, but the legal process has not yet been completed. That means there’s still a chance it won’t happen.
Based on the information released to date, Optum is looking to take EMIS to new heights and drive growth. Details about what the company will look like have not yet been released. Based on my research, I assume that EMIS still operates as an independent business away from the parent company, but I could be wrong. Time will tell.
AMIS investment case
First, I am comfortable with the EMIS business model. Due to the complex and essential nature of the solutions, many of them are referred to in the industry as ‘sticky’ software products. This is basically because it is difficult and time-consuming to replace, so they last a long time. The positive EMIS here generates more recurring income, which helps boost growth and stock returns.
Right now, EMIS shares boost my passive income stream through DVDDivin. The current dividend yield is 1.9%, up from FTSE 250 Average 1.9% but I know dividends can be cancelled.
Finally, I can see that EMIS has a good track record of performance. I know that past performance is no guarantee of the future. However, in retrospect, he realizes that revenue and profit have grown in the last three years out of four years. In 2020, the rate dropped slightly due to the pandemic.
So looking at some of the risks, EMIS shares are at an all-time high price-to-earnings ratio of nearly 40. If the takeover doesn’t happen or other negative news emerges, the shares could fall significantly. .
All things considered, I’ve decided to keep EMIS on my watch list for now. The lack of clarity around the handover, as well as what the company might look like if the handover is successful, helped me to come to a conclusion. The current valuation of the FTSE AIM is too high for my liking.