The management of Union Diagnostic and Clinical Service recently made available its first quarter scorecard to the investing public after the regulatory deadline given by the Nigerian Stock Exchange (NSE), the high point of which was its crossover into profit.
This is attributable to management’s commitment, innovation and steady expansion of operating network that has boosted earnings capacity over the past four years, while reducing accumulated losses from the almost N1 billion, thereby shortening shareholders waiting period for reward in the form of cash or script dividend.
Unlike in recent time, the latest earnings numbers were flat, reflecting the slower than-expected economic recovery, without forgetting challenges militated against many healthcare businesses.
It must however be noted beforehand that Union Diagnostic remains in profit due to the nature of its services, as well as the effective cost management as shown by the net profit margin, helped by the adoption of technology-driven improvements in service delivery. These is also the enhanced operating processes helping to drive top and bottom-lines up, despite the mixed performance recorded in the 2017 full-year earnings reports. This is further confirmed by the first quarter numbers that shows the company has kick-started the 2018 financial year as a guide to what investors should expect at full-year.
Expectations are that at the rate it is going, the company would totally wipe off it accumulated losses and start paying dividend again, a situation Investdata Research expects would drive its price, while boosting investor confidence considering the nature of it service.
Financials
Turnover for the period rose 13.84% to N451.47m from N396.6m in the corresponding period of 2017.
Also, cost of servicing the company’s borrowing dropped by a significant 69.54% from N1.74m in 2017 to N0.53m, which ought to positively impact bottom-line but for the increase in employee benefits, repairs and other operating expenses that weighed down profit at N101.21m, compared to the previous N103.12m.
Considering developments in the company and strategies to drive expansion and growth, we foresee a higher earnings power at the end of 2018 that would drive the price and offer dividend to shareholders in the coming years.
The stock is currently selling at 42 kobo, indicating a huge intrinsic value for discerning investors, especially considering that the Book Value is currently N1.26 per share, while Price/Book Value of 0.38. This means that investors are paying less for the company’s intrinsic value.
Moreover, the 2017 full-year Price/Earnings Ratio of 5.37x indicates that Investors’ waiting period has reduced, as a result of the improved earnings and decline in price that makes it more attractive for long-term investors.
For profitability and investment ratios see the table below
Valuation/Recommendations
The continued expansion drive and sustained positive earnings are the major sources of attraction, especially now that the economy is on recovery path which offers discerning investors opportunities to buy into value, where investment risk is almost zero. With the progress recorded in recent years and the first quarter 2018 earnings report, there is an indication that the company would beat its earnings forecast for 2018. 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 at N1.26 per share and profit margin of 22.42% signify that the stock is undervalued, just as its Net Profit Margin of 22%, indicates that from every Naira generated from sales, 22 kobo is retained as profit. The company’s Q1’18 Price-Earnings-Ratio and Price/Book Value of 4.21x and 0.38x respectively are okay for the market and considered low for its sector.
From the foregoing, each unit of Union Diagnostic is fairly and technically priced at N1.45 per share, while future earnings performance will determine any review.
History
The company was incorporated in 1994 and listed on the Nigerian Stock Exchange in May 2007 and provide services such as: Sonology, including Colour Doppler imaging, X-ray imaging, Electrocardiography and Endoscopy, Computed Tomography (CT) Scan, and Magnetic Resonance Imaging (MRI). Others include: Echocardiography (ECG), Electroencephalography (EEG), Electromyography (EMG), Cytology, Toxicology, DNA testing (thereby saving the nation huge foreign exchange), to laboratory services, including Immuno Assay, among others.
UDCS Plc currently has presence in 16 states, up from 12 in 2015 and operating from 21 branches, making it the largest diagnostic firm in West Africa, besides having the most extensive workload as per its 2014 reported statistics of more than 300,000 clients per year. These are 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.
Management
At any time, the performance of a company’s management is gauged through its earnings, because it reflects commitment, competence and ability to strategically reposition products or services to drive profit.
The quarterly and yearly earnings performance of Union Diagnostic in recent times is a pointer to the need for the company to continue posting strong earnings capable of supporting dividend payment and in the process drive share price.
From the foregoing, there is need for management to continue its proactive plans to capture more market share, especially with its recent expansion into more states and thereby support the building of its top and bottom lines.
Five-Year Performance Analysis
A look at the five-year performance shows improvements have continued since the negative accounts in 2013, despite the challenging business environment including the nation’s slip into recession from which it emerged in last year. Inadequate infrastructure, particularly power and transport, in addition to repairs, maintenance and other costs that impacted negatively on its books, just as increasing competition from the cottage industries in the laboratory business.
But, carefully looking at the numbers, reveals one year of loss position and four years of sustained growth in its top line and profitability level that today give investors hope of receiving dividend and price up ward reversal. The profit of the latest four years is now being used to wipe off the accumulated loss.
Union Diagnostic’s turnover for the period rose from N862.57m in 2013 to N1.57bn, representing 82.56% growth, while from a loss in 2013, it returned to profit in 2014 and situation it until date.
Specifically, the company suffered a N995.9m in 2013, before recovering in the following year with N111.18m profit. This rose to N316.89m in 2016, before a marginal decline to N302.5m, a good signal that the company has come to stay on the path of profit, even as it is set to reward shareholders soon.
Net assets on the other hand currently stands at N4.37bn from N3.45bn recorded in 2013, representing a 26.67% growth.
Estimated Performance Ratios
The profitability and investment ratios for the period under review show that the amount earned by investors and management were flat at N0.09 in 2017 and 2016 from a loss per share of N0.23 in 2013. This is a reflection of the company’s unstable earning power. PE ratio is relatively okay at the current estimate of 5.87x from the negative position of -1.78x in 2013. The last full year EPS is a yield of just 17.03% 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 revealed in the Book Value which ranges between the low of N0.97 and high of N1.23. Putting the ratios and the market price side-by-side signals opportunities for medium and long-term investors. The profit margin of the company has returned to positive to remain above the international average of 15% at 19.30%.
Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
