Every year thousands of people suffer serious side-effects from taking prescription drugs and over-the-counter medicines. This resulted in 973 reported deaths in 2006 from suspected adverse reactions, and is also costing the NHS around £3.8bn a year. Worse still, many of these mistakes could be avoided with better systems in place.
Ascribe (Aim:ASP)
This is where Ascribe fits in. It is a developer of top-notch IT systems for the NHS and similar foreign healthcare providers. Its proprietary software helps eliminate pharmacists’ errors (such as dispensing incorrect medicines, or supplying wrong dosages), along with improving patient care by providing better information to reduce the chance of acute allergic response. The software has been so successful that Ascribe has sold at least one of its 19 modules to most of the UK’s NHS Trusts (eg, Guy’s and St Thomas’s Hospital).
What’s more, there’s still room for expansion, given excellent prospects for domestic cross-marketing initiatives and from overseas orders. Growth is also expected from the increasing popularity of its new web-based product that has been developed over the past 18 months. Addenbrooke’s has already purchased this online application, while in April the Royal Bolton Hospital (RBH) became the latest client to deploy the innovative technology. The RBH aims to benefit not only from enhanced reliability and lower costs, but also from the integration with its new robotic dispensing system; thereby taking a giant step forward in improving patient safety.
As for the financials, house broker Centos is forecasting 2008 sales and underlying earnings per share of £18.3m and 2.7p respectively, rising to £20.4m and 3.2p in 2009. As such, the shares trade on paltry p/e ratios of less than eight and seven for the next two years, which looks attractive for such a hi-tech stock operating in a niche – yet expanding – market.
On top of this, around 70% of its revenues are derived from long-term contracts and the orderbook stood at a record £3.1m at the end of December, of which £2.7m should be delivered in H2 – offering solid forward visibility.
So why has the stock fallen from 60p last summer? Well, unfortunately, the firm released a profits warning in 2007 after it failed to deliver on contracts due to delays from internal restructuring within the NHS. Net debt of £4.1m as at 31 December also needs to be watched, although interest is covered a healthy ten times, and second-half cash-flow should be strong, as many of its annual maintenance contracts are invoiced in April.
Recommendation: BUY at 21.25p (market cap £24.3m)
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