The management of Union Diagnostic and Clinical Service made available its full year 2016 earnings reports to the market last week alongside with the 2017 first quarter scorecard. Despite publishing the accounts after the regulatory deadline given by the Nigerian Stock Exchange (NSE), in keeping with the post-listing requirement, the numbers came earlier compared to the date for 2015. The consolidated improvement in its earnings capacity over the last three years has helped to reduce the accumulated losses, thereby shortening shareholders waiting period for reward in the form of dividend.
The company’s track record of releasing impressive numbers, despite the harsh economic situation militating against many businesses has kept posting profit as a result of the nature of its services, as well as effective cost management as revealed by the profit margin.
The technological innovations visible in its operational processes and increasing network of operating offices have supported top and bottom-lines, both of which have continued to point northward. The first quarter numbers to kick start 2017 financial year is guide to what investors should expect at the end of year where the company would have total wipe away it accumulated loss position and start paying dividend again that will drive price. Its nature of service and the increasing health challenges across Africa, with a rise or fall in disposable income are not having much adverse effects on demand for medical attention. Doctors, we know, require results of laboratory tests to determine the nature of an illness and intervention necessary.
In real numbers, Union Diagnostics reported a turnover of N1.55bn for the year, up from N1.23bn in the corresponding period of 2015, representing 26.02% growth. This was driven by the increasing branch network of the company to reach more customers and technology 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 N10.66m in 2015 to N6.72m, which among other things impacted positively on profit level. This resulted in profit of N316.89m, from N189.34m in the corresponding period of 2015.
Considering the new trend in Union Diagnostic’s financials, we foresee a higher earnings power at the end of 2017 that would drive the price and provide dividend for investors in the nearest future. The stock is currently selling at a par value of 50 kobo, which indicates huge locked in value for discerning investors, especially with its Book Value currently at N1.15 per share and Price to Book Value of 0.44, which means that investors are paying less for the company’s net assets.
Moreover, the first quarter Price to Earnings Ratio of 4.31x indicates that Investors’ waiting period has reduced, as a result of the improved earnings.
For profitability and investment ratios see the table below
SOURCES: COMPANY DATA & INVESTDATA RESEARCH
Valuation/Recommendations
The continued improvement in the company’s earnings is a major source of attraction for all stakeholders, especially now that the economy is in a recovery mode which gives discerning investors opportunities to buy into value, where investment risk is almost zero. With the progress recorded in the first quarter 2017 earnings report, there is an indication that the company would beat its earnings forecast for 2017. 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 N1.17 per share and profit margin of 26.10% signifies that the stock is undervalued at the current market price, on the strength of its Q1’17 Price-Earnings-Ratio and Price to Book of 1.73x and 0.43x respectively are okay for the market and low in its sector.
The share price of Union Diagnostic is fairly and technically placed at N1.50, while future earnings performance will determine any review.
The company’s repositioned operations and services have started yielding results and is ready to jumpstart 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 20 branches, which makies 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.
Although profit for the year and Q1 ’17 were 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 full year and first 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 2016 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.
From the foregoing, there is for management to 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 (2012 to 2016) financials however reveals two years of loss position and three years of sustained profitability that today give investors hope of receiving dividend after about six years without any form of reward. The profit of the last three years is now being used to wipe off the accumulated loss.
Union Diagnostic’s turnover for the period were up from N904.21m in 2012 to N1.55bn representing 71.36% growth.
Meanwhile, the company’s experienced a mixed profit performance, recording a loss for two straight years before returning to profit in 2014, a situation that has been sustained till date.
Specifically, loss rose from N5.55m in 2012, to N995.90m in 2013, before recovering the following year with N111.18m profit, which rose to N316.89m in the 2016 full-year. This is a good signal that the company has come to stay in the path of profitability and to reward its shareholders in no distant time.
Shareholders’ fund on the other hand currently stands at N4.07bn from N4.45bn recorded in 2012.
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.
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 N0.09 in 2016 from a loss per share of N0.23 in 2013, while 2012 recorded mild losses per share of -0.00. This is a reflection of the company’s unstable earning power. PE ratio is relatively okay at the current estimate of 5.61x from the negative high of 320.09x in 2012. The last full year EPS is a yield of just 17.84% 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 to remain above the international average of 15% profit margin.
SOURCES: COMPANY DATA & INVESTDATA RESEARCH
OMORDION AMBROSE
CHIEF OPERATING OFFICER
INVESTDATA CONSULTING LIMITED
ambroseconsultants@yahoo.com
TEL:01-4724645,08028164085,07028061501
