We have had results from two AIM listed stocks today which I have written up in the past. One is a EMIS a high quality healthcare software business which has a large amount of recurring revenues and is growing strongly but as a result is expensively rated . While the other is Fairpoint (FRP) the debt service business which is diversifying into legal services.
EMIS the £666m market cap software provider to the health care industry which features in the Compound Income Scores Portfolio announced in line final results today. These saw revenues, operating profits and earnings all up by mid teens amounts between 12 and 15% as they managed to increase their already impressive operating margin to 23.5% highlighting the quality of the business. The other feature which also underpins the business and its quality is the proportion of their revenues which are recurring i.e. come in every year. This year this proportion increased to 78.9% from 74.6%. The dividend was also raised by 15%, in line with forecasts, to 21.2p.
On the commentary they do talk about contract timing delays in secondary healthcare but despite this they still reported the strong growth detailed above and said that they still maintained customary strong revenue visibility, order book and pipeline going forward. They increased their market share in UK primary to 55% while they also flagged a deal they have agreed with Lloyds Chemists which will grow market share to close to 50% in their community pharmacy business as their next generation dispensary pharmacy management product began successful pilots.
So overall a decent set of numbers and continued growth from one of the highest quality companies listed on the AIM index. At the current share price of 1050p, unlike when I first got into it at around 600p, these qualities are now largely recognized in the rating with a PE of 23.2x and a 2% yield based on the numbers just reported. On current forecasts of 10% earnings and dividend growth for the coming year, assuming no changes on the back of these in line numbers, still leaves it on a full looking 21.1x with 2.2% yield which are higher and lower respectively than I would normally like. Having sold my own holding at around 1100p last year on valuation grounds, the same may well happen at the first annual re-screening of the Scores portfolio if it remains on that rating and as the Score has come down to 80 as a result. If however, you are not put off by the rating I'm pretty sure they will continue to deliver decent growth going forward which should drive a higher share price over time in the absence of a de-rating.
Meanwhile also on AIM, but perhaps at the other end of the quality spectrum is a stock I have mentioned in the past Fairpoint (FRP) which has also announced final results today. I say lower quality because it is a £75m market cap company and used to be a largely debt solutions business which has been a bit patchy, although more recently it has diversified successfully into more of a legal services business which may have raised the quality a bit.
The results themselves were generally a little better than forecasts, but the shares seems to have taken badly a goodwill write down on the debt service side and are therefore off about 5% to 155p this morning. At this level, before any changes to this years numbers, although there could I guess be upgrades given the better than expected numbers, they trade on just 7.75x with a 4.6% yield which on the face of it seems quite attractive.
They are talking about growing their legal side more both organically and by acquisition, although there have however been some concerns with this area of the business as changes to whiplash claims procedures caused the last sell off (see chart). They have since then largely quantified only a limited impact from that, when and if the changes come into play. So this increased focus on legal services could, over time, lead to a bit of a re-rating and therefore the shares could be worth another look down here or if they should drift off further towards recent lows around 130p to 140p.
So there you go two stocks at the opposite end of the quality and valuation spectrum and as ever you pay your money and take your choice or not as the case may be.