UNION DIAGNOSTIC PICKS UP PACE

Union Diagnostic & Clinical Services Plc recently released its nine months earnings report to the Nigerian Stock Exchange.  The numbers were impressive, with the company's top and bottom lines pointing in the northward direction in what is seen as a consolidation of its return to profit in 2014 after few years of downturn.

This improvement was attributed to the successful restructuring, rebranding and repositioning of the company's services with new equipments, automation of its process which had tremendously reduced its cost of operation, besides  eliminating waste.

Going by the nature of its services to humanity and increasing health challenges in Africa, increase or decline in disposable income of many Nigerians would not affect demand for its services, as every individual that is ill wants to get well by seeking medical attention, with doctors asking for the results of laboratory tests conducted.

The numbers revealed a 21 per cent rise in sales revenue to N936.76 million from N773.66 million in the corresponding period of 2014. This growth in revenue was driven by effective service delivery with the new equipments that attracted more patronage. The reduction in the cost of transportation, repairs, maintenance and other resultant operational costs that boosted its performance for the period under review are likely to continue, as the automation process of the company continues to yield positive result.

Union Diagnostic had successfully overcome its loss positions in the past years, with strong determination by its management to build value for shareholders. The company is working towards balancing its accumulated losses and profit in order to start rewarding its investors. The cost of servicing its borrowing, however, remains relatively high as seen in the financial expenses for the period under review, which increased by 54 per cent from N5.3 million in 2014 to N8.2 million.

All said, the company reduced cost of operation, a situation that impacted its profit level positively, following which profit after tax increased to N145.72 million from N64.93 million in the corresponding period 2014.
Considering the new trend in Union Diagnostic financials, we foresee a higher earnings power at the end of 2015 that would drive the price and provide dividend for investors in the nearest future. The stock currently selling at a par value of 50 kobo indicates value for discerning investors, as the company's  book value currently stands at N1.04; and third quarter  price to earnings ratio of12.19x. Investors' waiting period has reduced, as a result of improving earnings of the company.

UNION DIAGNOSTICPLC
NINE MONTHS REPORT FOR  2015
COY	2015	2014	% Chg
	(N)	(N)
Date Released	October 30, 2015	November 4,  2014
Price as@Rel.Date	0.50	0.50
Gross Earnings	936,755,890	773,658,117	21.08
Profit After Tax	145,718,820	64,925,146	124.40
Shareholders' Fund	3,711,245,704	3,519,247,137	5.46
Earnings Per Share	0.04	0.02	100
PE Ratio	12.19	27.36	-55.45
Earnings Yield	8.20	3.65	124.66
Book Value	1.04	0.99	1.01
ROE	0.08	0.02	300
Profit Margin	15.56	8.39	85.46
	Dec	Dec

    SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation/Recommendations

The continued improvement in the company's earnings is a major source of attraction for all stakeholders, regardless of the ongoing economic slowdown. With the progress made so far in this year's quarterly scorecard, there is an indication that the company would beat it earnings forecast for 2015. Its book value at N1.04 and profit margin of 15.56 per cent, signifies that the stock is undervalued at the current market price on the strength of its Price-Earnings-Ratio of 12.19x, which is relatively okay in the market and low for its sector. 

The share price of Union Diagnostic is fairly and technically placed at N1.20 and future earnings will determine any review. 
The company has not paid dividend in recent years as it repositions its operation and services, a situation that has started yielding results. The new technology and equipments has continued to impact on the company’s profit, reducing its cost of operation as mentioned earlier.

Based on this reality, we advise investors in the stock to hold and increase their stake if this positive numbers are sustained in the future reports of the company.

History

Union Diagnostic and Clinical Services Plc (UDCS Plc) was incorporated in 1994 and listed on Nigerian Stock Exchange in May 2007. UDCS Plc has the capacity to provide services ranging from Sonology, including Colour Doppler imaging, X-ray imaging, Electrocardiography, Endoscopy, Computed Tomography (CT Scan), Magnetic Resonance Imaging (MRI), Echocardiography (ECG), Electroencephalography (EEG), Electromyography (EMG), Cytology, Toxicology, DNA Testing to Laboratory Services including Immuno Assay etc.

UDCS Plc currently has presence in 12 states in Nigeria, operating from 20 branches, making it the largest diagnostic firm in West Africa. This is besides having the most extensive workload as per its 2014 reported statistics of more than 300,000 clients per annum as referrals from hospitals, clinics and other laboratories for diagnostic tests as a result of its technology and new equipments for effective and efficient services. It relationship with state governments and health authority has boosted the company's revenue and clientele base.

Union Diagnostic & Clinical Services PLC
Share Holding Structure
Dr. A.O. Akinniyi	8.10%
Senior Design Ltd.	12.80%
Mr.E.A. Akingunoye	9.80%
Foyin Chemist & Stores Ltd.	9.80%
Merrybome Investments Ltd	7.70%
Rosel Communications Limited	9.20%
LifeCare Partners	14.10%
Others Nigerians	28.5%
Other Statistics
Shares Outstanding (MN)	3,553,138,530
Opening Price (2015)	N0.50
Closing Price at  (Nov 6  2015)	N0.50
Date Listed	May, 2007
Year End	December 31st

Although profit for the period was up to its comparable period’s figure, investors’ are yet to react to the numbers compared to the selling price of the company stock, knowing that the third quarter earnings is better than the full year 2014.This is a pointer that the recent rebound of the company to profit would go a long way to reduce investors waiting period and point to dividend payment in the nearest years.

The price movement of the equity through the recent financial years have been weak as it remain static at 50 kobo.

Management

It is true that a company’s earnings performance reflect the management’s commitment, competence and ability to strategically reposition its products or services to drive profitability.

The impressive performance of Union Diagnostic in recent quarterly and full-year results calls for encouragement for the company to sustain its good works of posting strong earnings that could support its operation lines and share price. 

The management team should be more proactive in capturing more market share and building its top line to further boost its profit.

Performance Analysis

Looking at the numbers posted over the period of five years, it is obvious that the business environment was challenging for the company as infrastructure problems like power, transportation, repairs and others cost impacted its performance negatively, just as the increasing competition from the cottage industries in the same laboratory business.

But then, a cursory look at the company's five-year (2010 to 2014) financials however reveals that the problem started in 2010 after it first dividend as a listed company.  Within the period, Union Diagnostic marginally built its sales revenue. The full year turnover stood at N998.31 million from the N684.80 million of 2010.

Meanwhile, profitability experienced a mixed performance as the company posted loss position for straight four years before bouncing back to profit in 2014,it move from a red account of N158.91 million in 2010 to huge loss position of N995.91milion in 2013 before recording profit of N111.18 million in 2014, the numbers further jumped to green to usher in a new beginning for the company.

Shareholders' fund on the other hand currently stands at N 3.55 billion from N3.45 billion in 2013 but low in the five years period from high of N4.53 billion in 2011.

Please note this is a breakdown of the numbers posted within the period under consideration. 

The company's nor payment of dividend is a function of its loss position for a long time but with the recent years improvement in its earnings power, investors anticipation for dividend in the nearest years are closer.

UNION DIAGNOSTIC  FIVE YEARS FINANCIAL PERFORMANCE
	2014	2013	2012	2011	2010
Date Released	May 28, 2015	May 31, 2014	April 24, 2013	May 2,2012	May 13, 2011
Price @ Released Date	N0.50	N0.50	N0.50	N0.50	N0.50
Gross Earnings	998,,309,070	862,569,730	904,213,340	702,615,260	684,801,000
Profit After Tax	111,177,898	-995,901,766	-5,550,293	-223,523,722	-158,908,000
Shareholders' Fund	3,553,526,888	3,454,348,986	4,450,250,752	4,532,359,473	4,255,000,000
Dividend	Nil	Nil	Nil	Nil	Nil

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Estimated Performance Ratios

The company's financial ratio for the period under review shows that the amount earned by investors and management were better at 3 kobo in 2014  from loss position  of 23 kobo in 2013, while 2012, 2011 and 2010 recorded  mild lost per share of -0.00, -0.06 and -0.04 respectively. This is a reflection of the unstable earning power of the company. Price earnings ratio is relatively ok at the current estimate of 15.98x from the negative high of 320.09x in 2012. The last full year EPS is a yield of just 6.26 per cent of the market price as of the release date. This simply signifies an improvement on the stock valuation by the market as against the posted numbers.
This was further indicated by the Book Value that ranges between the low of N0.97 and high of N1.34. Putting this ratio and the market price of the stock signals opportunity for medium and long term investors. The profit margin of the company has returned to positive with improvement. 

UNION DIAGNOSTIC- ESTIMATED RATIOS
	2014	2013	2012	2011	2010
Earnings Per Share	0.03	-0.23	-0.00	-0.06	-0.04
PE Ratio	15.98	-1.78	-320.09	-7.95	-11.18
Earnings Yield	6.26	-56.06	-0.31	-12.58	-8.94
Book Value	1.00	0.97	1.25	1.28	1.34
ROE	0.03	-0.29	0.00	-0.05	-0.03
Profit Margin	11.13	-115.46	-0.61	-31.81	-23.20
Year End	Dec	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH