Clarus research on Nightingale
“First Step Toward ASP Certification Complete
Yesterday, Nightingale announced that its ASP-based electronic medical record (EMR) solution was selected in Ontario for future funding eligibility. Final certification will be awarded once implementation requirements have been met. As one of three approved ASP solutions with OntarioMD for the next 15 years, physicians will be able to receive three-year IT funding of up to $28,600 which includes the Company’s EMR solution. Previously, there was only one approved ASP and 19 local products. Following a competitive RFP process, we are encouraged by this development and believe that this endorsement speaks to the technology’s functionality. Financial terms were not disclosed.
Although we are not changing our estimates at this time, we believe final certification could present upside to our FY09E given that only ~20% of Ontario’s ~22,000 physicians have implemented electronic medical records. While the government’s total budget is unknown, we believe that subsidy is essential in driving EMR adoption levels. Currently, we are forecasting $35m in revenue and ($0.02) in EPS FD in FY09E. The table below shows the sensitivity to our FY09E estimates from additional physician sign-ups in Ontario following certification. We expect any additional physician wins to positively impact recurring revenue going forward.
Turning to valuation, NGH shares are trading at 1.1x EV/S on our FY08E while US-based comps, Quality Systems (QSII-Q) and Allscripts (MDRX-Q), are trading at 4.8x EV/S on forward consensus. Our target price of $1.10 per share is based on a 2.5x EV/S multiple applied to our FY08E. We maintain our SPECULATIVE BUY recommendation.”