The war in Ukraine now enters a fourth week and after the initial shock markets have adapted and recovered. The fighting also seems to have stabilised; frontlines where the Russian forces reached the end of their supply chains and their willingness to drive into Ukrainian missiles. The loss of material and men will be biting; Putin is having to beg supplies from China and demographics show this is an old Russia (median male age in the 40’s, up from teens in WW2); no longer the Russia with an unending surplus of young conscripts. Most conflicts finally end in settlement when both sides realise they aren’t going to win outright, so now it’s down to seeing who can achieve the best negotiating position. Of course, the Russians are still bombarding Ukrainian civilians, so the sanctions and economic impact has yet to play out.
As we have already noted, the bitter pill to swallow is that the war is likely to worsen the global component shortages originally caused by the pandemic. Ukraine supplied c.70% of the neon gas needed for chip production and Russia was a leading global supplier of nickel and palladium. Meanwhile both sides are hoovering up component stocks for coms, drone and missile replacement. To add pressure, this week China shut its Shenzhen factories again as a new wave of COVID threatens their zero-tolerance policy.
So perhaps tech investors might look to software and receive some soothing balm from a couple of healthtech stocks which have recently reported good numbers; Craneware (CRW) and EMIS (EMIS). The former supplies the US private healthcare industry with solutions to help track and justify billings, while the latter supplies its technology to connect and integrate the multiple elements of UK primary and community care. As we highlighted in last year’s sector note both have seen the growing importance and value of drug treatments in modern healthcare and made moves into pharmacy solutions. EMIS’ acquisition of Pinnacle in March 2020 was particularly prophetic as Pinnacle played a leading role in organising the UK’s successful COVID vaccination programme, with a commensurate uplift in its revenue through FY21, helping EMIS to deliver 6% sales growth and 11% rise in adj. operating profit. Also recognising the growing importance of pharmacy, Craneware virtually doubled its scale with the purchase of Sentry Data Systems in July 2021, adding pharmaceutical procurement and compliance to its US healthcare offering. These interims to December were the first results of the combined business and underlined the step change with revenue up 111% and Adj. EBITDA up 78%. Importantly, the questions over earnings enhancement were settled with a 34% jump in the EPS.
Sentry’s revenues are all recurring, so Craneware’s ARR leapt from $64m to $165m (95% of a $173m consensus this year). EMIS is also building its recurring revenues from the NHS; up 4% to 80% of FY21’s £168m revenue. Both are tightly integrated into their customers systems and processes with low churn and excellent upselling paths.
And what of the future? EMIS has the solidity of its Health division’s NHS operations but the excitement comes from the growing Enterprise division, integrating local community pharmacies with GP practices (with millions of appointments to be moved to pharmacies to free up GPs) and data analysis; the use of AI to trawl clinical records for actionable patient insights as well as identifying cohorts for research and treatment testing. For Craneware the fizz comes from the rollout of its Trisus cloud platform, pulling all the various data sources together to give US hospital management a clear picture of their business at a time when it is being pressured by politicians and healthcare insurers to provide better value.
Like the health industry itself, healthtech offers a calmer and more beneficial environment at present; some soothing medicine for these volatile market conditions.