UNION DIAGNOSTIC SUSTAINS BETTER EARNINGS, REDUCES INVESTORS WAITING PERIOD

The recently released full year and first quarter earnings reports  of Union Diagnostic and Clinical Service to the investing public reveal impressive numbers to support the pace at which the company is enhancing its performance to start paying dividend again soon.

The enthusiasm is based on the strength of its new markets by the recent move to start operations in  three more states of the federation, new branches in existing states of operation already and cost cutting initiative of the management  to navigate the prevailing economic reality of the day.The company's top and bottom lines were pointing to the north to consolidate its return to profit two years ago after experiencing a downturn in its performance. 

This significant improvement that is helping the company reduce its negative retained earnings as a result of its successful restructuring, rebranding and repositioning of the company's services with new equipments. This are in addition to the automation of its processes which had tremendously reduced cost of operation, besides eliminating waste, all of which have impacted its performance positively, coupled with the nature of its service.

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

The sales revenue for Q1 2016 rose to N304.55 million from N299.56 million in the corresponding period of 2015. This 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 enhanced its performance as revealed by the profit, which expected to continue, as automation of company's operation processes continues to yield positive result. 

The 2015 full year and the 2016 Q1 earnings reports of the company has confirmed its total departure from the loss positions witnessed in the past years, with strong determination by its management to build value for shareholders and Nigerians. Officials of the company assure that they are working towards balancing its accumulated losses and profit in order to start rewarding investors. The cost of servicing its borrowing, however, dropped significantly from N1.16 million in 2015 to N0.632 million as the company's financing income reduce expenses. 

The company's cost reduction process has continued to improve its  cost of operation, a situation that impacted its profit level positively. This resulted in profit after tax increase to N176.04 million from N111.18 million in the corresponding period 2014 for the full year. Also in Q1 2016, profit level moved to N80.03 million from N73.28 million in 2015.

Considering the new trend in Union Diagnostic's financials, we foresee a higher earnings power at the end of 2016 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, going by the currently book value at N1.08 and price to book of 0.46. This means that investors are paying  less Naira for the company's net assets.  The first quarter price to earnings ratio of 5.55x, indicates that Investors’ waiting period has reduced, as a result of the improved earnings.

UNION DIAGNOSTIC PLC
THREE MONTHS REPORT FOR  2016
COY	2016	2015	% Chg
	(N)	(N)
Date Released	May 26, 2016	April 24,  2015
Price as@Rel.Date	0.50	0.50
Gross Earnings	304,549,660	299,563,448	1.66
Profit After Tax	80,025,871	73,275,575	9.21
Shareholders' Fund	3,821.590,844	3,633,802,459	5.17
Earnings Per Share	0.02	0.02
PE Ratio	5.55	6.06	-8.42
Earnings Yield	4.50	4.12	9.22
Book Value	1.08	1.02	5.88
ROE (%)	2.09	2.01	3.98
Profit Margin	26.28	24.46	7.44
	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 recorded in 2015 and this year's quarter one scorecard, there is an indication that the company would beat its earnings forecast for 2016. This is based on the fact that government at federal and state levels concentrate efforts on improving the health care system.

The current book value of N1.08 and profit margin of 26.28 per cent signifies that the stock is undervalued at the current market price on the strength of its Price-Earnings-Ratio of 5.55x and price to book of 0.46, which is okay in the market and low for its sector.
The share price of Union Diagnostic is fairly and technically placed at N1.35 and future earnings will determine any review. 
The company has not paid dividend in recent years and is currently re-positioning its operations and services. This situation has started yielding results,ready to jump start dividend payment in the nearest future. The company's new technology and equipment has continued to impact on the 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 on the strength of sustained earnings so far.

History

Union Diagnostic and Clinical Services Plc (UDCS Plc) was incorporated in 1994 and listed on Nigerian Stock Exchange in May 2007. It 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 15 states from 12 states in 2015, operating from 25branches, 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 equipment 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 (2016)	N0.50
Closing Price at  (May, 26  2016)	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's stock, knowing that the2015 full year and first quarter earnings are better than those of the corresponding periods. This is a pointer to the fact that the company will sustain its profit profile, going forward. The price movement of the equity in 2015 and the current financial year have been weak, remaining static at 50 kobo.

Management

It is true that a company’s earnings performance is a reflection of its management’s commitment, competence and ability to strategically re-position its products or services to drive profitability. Meaning that the first scorecard of any company's management team is the earnings report.

The improved full-year and quarterly earnings performance of Union Diagnostic in recent times is a signal that the company should continue posting strong earnings that could support its operational lines, dividend payment and in the process drive share price. 

The management team should be more proactive in capturing more market share, especially the recent expansion into three more states to support the building of its top and bottom lines. 

Performance Analysis

Looking at the numbers posted over the period of five years, it is obvious that the business environment has remained very challenging for the company, in the face decaying and inadequate infrastructure like power and 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 (2011 to 2015) financials however reveals that the problem started before 2011 after it was listed and the company gave a one-for-five bonus with 8 kobo dividend.  Within the period, Union Diagnostic marginally built its sales revenue to hit, for the first time, N1.23 billion in 2015 from the N702.62 million of 2011

Meanwhile, profitability experienced a mixed performance as the company posted a loss for three straight years before returning to profit in 2014,a situation that has been sustained till date. Specifically, its loss position jumped from N223.52 million in 2011, to N995.91 million in 2013, before recovering the following year to post N111.18 million profit, raising it to N176.04 million last financial year. This is a good signal that the company has come to stay and to reward its shareholders in future time.

Shareholders' fund on the other hand currently stands at N3.74 billion from N3.56 billion in 2014, down from the five-years period high of N4.53 billion recorded in 2011.
The non-payment of dividend by the company is a function of its loss position for a long time, but with the recent year's improvement in earnings power, investors should anticipate dividend payment very soon..

UNION DIAGNOSTIC  FIVE YEARS FINANCIAL PERFORMANCE
	2011	2012	2013	2014	2015
Date Released	May 2,2012	April 24, 2013	May 31, 2014	May 28, 2015	May 24, 2016
Price @ Released Date	N0.50	N0.50	N0.50	N0.50	N0.50
Gross Earnings	702,615,260	904,213,340	862,569,730	998,309,070	1,227,867,630
Profit After Tax	-223,523,722	-5,550,293	-995,901,766	111,177,898	176,038,089
Shareholders' Fund	4,532,359,473	4,450,250,752	3,454,348,986	3,553,526,888	3,741,564,973
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 5 kobo in 2015 from a loss per share of 23 kobo in 2013, while 2012  and 2011 recorded  mild losses per share of -0.00 and -0.06  respectively. This is a reflection of the unstable earning power of the company. Price earnings ratio is relatively okay at the current estimate of 10.09x from the negative high of 320.09x in 2012. The last full year EPS is a yield of just 9.91 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 N1.28. Putting the ratios and the market price of the stock side-by-side signals opportunities for medium and long term investors. The profit margin of the company has returned to positive with improvement in its cost management as revealed by the scorecards. 

UNION DIAGNOSTIC- ESTIMATED RATIOS
	2011	2012	2013	2014	2015
Earnings Per Share	-0.06	-0.00	-0.23	0.03	0.05
PE Ratio	-7.95	-320.09	-1.78	15.98	10.09
Earnings Yield	-12.58	-0.31	-56.06	6.26	9.91
Book Value	1.28	1.25	0.97	1.00	1.05
ROE	-0.05	0.00	-0.29	0.03	0.05
Profit Margin	-31.81	-0.61	-115.46	11.13	14.34
Year End	Dec	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH