UNION Diagnostic &
Clinical Services Plc,
last week made its halfyear
earnings report
available to the investing
community, earlier than
the release date in for the
2016 scorecard, further
whetting the appetite of
shareholders even as its
track record continues to
reveal improvement on
quarterly and yearly basis,
despite the harsh economic
conditions militating
against its growth.
The company’s high Net
Profit Margin of 19.85%
shows improved efficiency
in managing its operational
costs, supported by the
earnings capacity over the
past three years which
has helped to reduce the
accumulated losses, thereby
paving way for payment of
dividend to shareholders.
Already, the accumulated
loss position dropped
by 66.06% to N179.19m,
thereby shortening
investors’ waiting period
for reward, such that price
starts responding to the
company’s impressive
performance. Added to
this is the company’s plan
to expand into providing
hospital services for the
good of Nigerians; with
government policy in the
health sector to encourage
local content.
The company’s
t e c h n o l o g y – d r i v e n
operational processes and
its increasing network
of operating offices have
supported top and bottomlines
that continue to point
northward. The Q2 numbers
consolidate its first quarter
position to point to where
the company will be at the
end of this financial year.
The 2017 half-year revenue
rose by 9.1% from N654.95m
in 2016 to N714.36m, driven
by improvements as shown
in the innovations, effective
service delivery and cost
management that helped to
eliminate waste.
This improved
earnings report confirms
management’s strong
determination to build
and preserve value for
shareholders, as the
company moves to wipe
off the accumulated losses
as quickly as possible to enable it begin paying
dividend.
The cost of financing the
company’s borrowing inched
marginally by 3.45% to
N3.48m from N3.36m in 2016,
which when added to the
hike in expenses recorded
for the period did not impact
its profit level negatively.
The profit for the period was
N141.8m, up from N123.19m
in the corresponding period
of 2016.
With Union Diagnostic’s
financials trending up, we
foresee higher earnings at
the end of current financial
year that would sufficiently
clean up the accumulated
losses and enhance dividend
payment along with share
price appreciation on the
floor of the exchange soon.
The stock is currently selling
at a par value of 50 kobo with
low risk that indicates value
for discerning investors,
especially with Book Value
currently at N1.19 and Price
to Book Value of 0.42, which
means investors are paying
less for the company’s net
assets.
Moreover, the second
quarter Price to Earnings
Ratio of 3.13x, indicates that
Investors’ waiting period
has reduced, as a result of
the improved earnings, from
3.58x in 2016.
The continued improvement
in the company’s earnings is a
major source of attraction for
all stakeholders; regardless
of the ongoing economic
situation as investment
risk in Union Diagnostics
is almost zero. With the
progress recorded so far on
quarterly basis, there are
indications that the company
would beat earnings forecast
for 2017, based on the fact
that government at the
federal and state levels are
eager to concentrate efforts
on improving the nation’s
health care system.
The current Book Value of
N1.19 per share and profit
margin of 19.85% signifies
that the stock is now
undervalued at the current
market price, on the strength
of its Q2 Price-Earnings ratio
and Price to Book, while
being okay for the market is
low in its sector.
The share price of Union
Diagnostic is fairly and
technically placed at N1.00 as
future earnings performance
will determine any further
review.
The continued
repositioning of its
operations and services to
deliver satisfactory services
has started yielding results
and ready to begin dividend
payment soon.
The company’s earning
capacity in Q1 and Q2 ’17
were up to its comparable
period’s figure to maintain
uptrend, investors are yet to
react to the numbers when
compared to the selling
price of the company’s stock,
knowing that the quarterly
earnings are better and
looking up. This is a pointer to
the fact that the company will
start paying dividend, going
forward. The price movement
of the equity in the current
financial year has been weak,
remaining static at 50 kobo per
share, regardless of the small
float due to its shareholding
structure.
From the foregoing, there
is need for management to
continue its proactive plans
of capturing more market
share, especially the recent
expansion into more states to
support the building of top
and bottom lines.
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 in the power and
transport sectors. Repairs
and other costs 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 reveals two
years of loss position and three
years of sustained profitability
that today gives investors hope
of receiving dividend after
about six years. The profit of the
last three years in the period is
now being used to wipe off the
accumulated loss.
Union Diagnostic’s
turnover for the period was
up from N904.21m in 2012
to N1.55bn, representing
71.36% growth.
Meanwhile, the company
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, the loss level
soared from N5.55m in 2012,
to N995.90m in 2013, before
recovering the following
year with a 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 profit 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 for
a long time, but with the
recent year’s improvement
in earnings power, investors
should anticipate dividend
payment very soon.
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
loss per share of -0.00, a
reflection of the company’s
unstable earning power. P/E
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 is further shown in
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-byside
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.

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