Australia | Aug 13 2009
By Chris Shaw
An acquisition has healthcare IT software group iSOFT ((ISF)) well placed to exploit opportunities in the US market, one that RBS Australia sees as offering solid growth potential in coming years given the US government has declared its intention to move the US healthcare system to one where broad standards of electronic health information systems are adopted.
The growth potential is substantial, the broker noting recent industry surveys show less than 10% of US hospitals currently have computerised physician order entry systems fully available, while other surveys show electronic health record are used by only 6-15% of office-based physicians.
This implies significant potential for iSOFT to build its presence in this market, particularly as scheduling and financial systems can streamline processes and electronic health records can improve the quality of the service provided by physicians.
To this end the company has acquired BridgeForward in a beach-head deal worth up to US$14.9 million, with US$4.9 mllion paid up front. RBS believes the acquisition has been debt funded. Assuming this it makes minor cuts to its earnings per share forecasts in coming years, though Deutsche Bank estimates the deal will be EPS positive to the tune of 1-2% from FY10.
What the purchase provides the company, in RBS Australia’s view, is an integration platform that works with its current Lorenzo product, meaning the deal increases the interoperability of the group’s range of products in a new market. Deutsche Bank estimates BridgeForward has around 4,000 customers, though it takes the view there won’t be huge sales as a result of the deal. In other words, the broker expects additional moves as the company’s US strategy plays out, most likely being a partnership with a systems operator to allow for broad-based IT solutions to be offered to the market.
The US isn’t the group’s only growth option though as RBS Australia notes the company continues to rollout its Lorenz product in the UK market. The company reports full year earnings next week and the broker expects an earnings per share outcome of 3.1c, rising to 4.5c in FY10. This compares to the 2.4c earned in FY08.
Deutsche Bank’s numbers are similar, its EPS estimates calling for 3c this year and 5c in FY10, the broker expecting the result to show a significant improvement in operating cash flows. Such an outcome would please the market in its view given cash flows in the first half of the year were disappointing.
Both brokers rate the stock as a Buy, RBS Australia with an $0.88 price target and Deutsche with a target of $0.85. Aspect Huntley provides the only other coverage in the FNArena universe and rates the stock as a Hold, having recently downgraded from an Accumulate rating.
Shares in iSOFT today are slightly higher and as at 1.30pm the stock was up 1c at $0.77. Over the past year the stock has traded in a range of $0.59 to $0.785.