UNION DIAGNOSTIC: SET TO REWARD INVESTORS ON IMPROVING PROFITABILITY

The consolidated half year numbers made available recently  by Union Diagnostic and Clinical Service to the investing community has further whet the appetite of of shareholders. This is based on the company's track record as it continues to churn out impressive profits, despite the harsh economic situation militating against its growth. Such has been shown by the high operating costs that had eaten into its profit as revealed by the profit margin. 

The technological innovations  visible in its operational processes and increasing network of operating offices  have supported the top and bottom-lines, that continue to point northward. The numbers consolidate its first quarter position, returning to the profit level attained two years ago after experiencing a downturn in its performance. Its nature of service to humanity and the increasing health challenges across Africa, with a rise or fall in disposable income not having much averse effects on demand for  medical attention. Doctors, we know, require results of laboratory tests to determine the nature of an illness and intervention necessary.

Specifically, Union Diagnostics reported a turnover of N654.95 million for the 2016 half year, up from N623.43 million in the corresponding period of 2015. This was driven by improvements as shown in the innovations,effective service delivery and cost management, to eliminate waste. 

This improved earnings report confirms the management's  strong determination to build value for shareholders and Nigerians, with the  company ensuring that accumulated losses are wiped off as quickly as possible to enable it begin rewarding investors.

The cost of servicing the company's borrowing dropped significantly from N3.04 million in 2015 to N1.10 million, which among other positiveimpacts on its profit level. This resulted in profit of N123.95 million, from N105.99 millionin the corresponding period of 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, especially with Book Value currently  at N1.09 and Price to Book Value of 0.46, which means that investors are paying  less for the company's net assets.

Moreover, the second quarter Price to Earnings Ratio of 3.58x, indicates that Investors’ waiting period has reduced, as a result of the improved earnings.

UNION DIAGNOSTICPLC
SIX MONTHS REPORT FOR  2016
COY	2015	2016	% Chg
	(N)	(N)
Date Released	August 5, 2015	August 1,  2016
Price as@Rel.Date	0.50	0.50
Gross Earnings	623,425,043	654,952,772	5.06
Profit After Tax	105,991,522	123,954,522	17.00
Shareholders' Fund	3,671,518,687	3,864,759,595	5.18
Earnings Per Share	0.03	0.03
PE Ratio	4.19	3.58	-15.0
Earnings Yield	5.97	6.98	17.00
Book Value	1.03	1.09	5.83
Price/Book	0.48	0.46	-4.17
ROE (%)	2.89	3.21	11.07
Profit Margin	17.00	18.90	11.18
	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 as your investment risk is almost zero. With the progress recorded so far on quarterly basis, 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 are eager to concentrate efforts on improving the nation's health care system. 

The current Book Value of N1.09 per share and profit margin of 18.90% signifies that the stock is undervalued at the current market price, on the strength of its Q2 Price-Earnings-Ratio and Price to Book, which is okay for the market and low in its sector.
The share price of Union Diagnostic is fairly and technically placed at N1.20 as future earnings performance will determine any review. 
The company's repositioned operations and services have started yielding results and is ready to jump start dividend payment in the nearest future.

History

The company was incorporated in 1994 and listed on the Nigerian Stock Exchange in May 2007 and has the capacity to provide services ranging from Sonology, including Colour Doppler imaging, X-ray imaging, Electrocardiography and Endoscopy. Others include: Computed Tomography (CT) Scan, Magnetic Resonance Imaging (MRI), Echocardiography (ECG), Electroencephalography (EEG), Electromyography (EMG), Cytology and Toxicology. It is also able to undertake DNA testing (thereby saving the nation huge foreign exchange), to laboratory services, including Immuno Assay, among others.

UDCS Plc currently has presence in 15 states, up from 12 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 year, mainly referrals from hospitals, clinics and other laboratories as a result of its technology and new equipments for effective and efficient services. Its relationship with state governments and health authorities has boosted revenue and clientele base.

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 Ltd	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 (Aug 26  2016)	N0.50
Date Listed	May, 2007
Year End	December 31

Although profit for the period was up to its comparable period’s figure, investors’ are yet to react to the numbers when compared to the selling price of the company's stock, knowing that the first and second quarter earnings are better than 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 reposition its products or services to drive profit. This means that the first scorecard of any company's management team is the earnings report that measures the performance of its board and management.

The quarterly earnings performance of Union Diagnostic in recent times is a pointer to the fact that the company should continue posting strong earnings capable of supporting operational lines, dividend payment and in the process driving share price. 

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

Five-Year Performance Analysis

Looking at the numbers posted over a five-year period, it is obvious that the business environment has remained very challenging for the company, in the face of decaying and inadequate infrastructure, particularly power and transport. Repairs and others cost impacted performance negatively, just as 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 and N0.08 dividend. Within the period, Union Diagnostic marginally built sales revenue to hit, for the first time, N1.23 billion in 2015 from N702.62 million of 2011

Meanwhile, the company experienced a mixed profit performance, recording a loss for three straight years before returning to profit in 2014,a situation that has been sustained till date. Specifically, its loss rose from N223.52 million in 2011, to N995.91 million in 2013, before recovering the following year with N111.18 million profit, which rose to N176.04 million in the 2015 full-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-year 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 ratios for the period under review shows that the amount earned by investors and management were better at N0.05 in 2015 from a loss per share of N0.23 in 2013, while 2012  and 2011 recorded mild losses per share of -0.00 and -0.06  respectively. This is a reflection of the company's unstable earning power. PER 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% 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 improvementin 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

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