Dental Group 1300 Smiles continues to grow

We have see a real opportunity for dentist to take advantage of 1300 smiles push through regional areas. Today The Age reported this story about their recent success.

SOME investors are betting that Townsville-based dental ”roll-up” business 1300 Smiles will match another practitioner of this type of business strategy, InvoCare, the funeral-home operator.

The former’s 30 per cent rise in the past eight weeks suggests its investors may be on to something.

The ”roll-up” business model involves buying a large number of smaller operators for three times their earnings, and then putting them into a business that is trading on a price-earnings (PE) multiple of 20 times-plus (the average for industrials is about 11 times). At least in the early phases, acquisitions can add to earnings growth from day one.

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InvoCare is a definite success story, with a market worth of more than $900 million, and a share price that has almost doubled in the past three years.

With its shares at $5.15, 1300 Smiles is becoming one, with a market capitalisation of $122 million. It listed in 2005 after raising $1 million at 80¢ a share.

Driving this is phenomenal earnings growth. 1300 Smiles has more than doubled its profits in the past three years. But will this breakneck speed continue?

The stock is priced as though it will, trading on a PE multiple of about 20 times. To keep generating 20 per cent-plus profit growth, 1300 Smiles needs to attract more and more dentists to regional Australia and keep them smiling, as they are its most important asset.

The connection between a patient and a dentist is crucial, whereas in InvoCare the relationship is somewhat more detached.

1300 Smiles managing director Daryl Holmes (who keeps in touch by working half a day a week as a dentist) owns a 62 per cent stake in the company and is dismissive of any suggestion that there is a difficulty in finding professionals.

”We take away all the admin and management issues, and let the dentists concentrate on what they do best … I’ve just come back from the British dentistry convention and I met over 50 dentists wanting to relocate to Australia,” he says.

After watching several episodes of British sitcom My Family, which stars a dentist, Radar has no doubt that this is the case. Written by Richard Hemming