Tasty treats to sink the investment teeth into
WHILE the healthcare sector is seen as an investment nobrainer given the ageing populace, dentistry bucks the “older and stronger” trend.
Demand is strongest among the 5 to 14 age group (when mum and dad pay) and the 30-65s (when the decades of neglect become apparent).
The highly fragmented nature of the $9.5bn a year sector means there’s still ample room for the cashedup larger players to acquire smaller practices.
The listed dental consolidators’ experience to date has been mixed. Townsville-based 1300SMILES listed in 2005 at 80c a share and last year was taken out by the Aucklandbased Abano Healthcare for $8 a share cash. Smiles Inclusive listed in 2018 after raising $35m, but fell victim to board infighting and a crippling debt burden and entered voluntary administration in late 2020.
Over at the surviving listed consolidator Pacific Smiles (PSQ), the smile has been turned upside down as the company faces a move by founder and large shareholder Dr Alexander Abrahams to spill the board.
An EGM – a.k.a. High Noon – has been scheduled for December 19.
Pacific Smiles is the country’s biggest dental chain behind health insurer Bupa’s network and Abano but still only has a 2.5 per cent market share. Pacific Smiles reported a loss of $3.2m in the year to June 30 2022 compared with a $14m loss previously, with a dividend (2.4c a share in the previous year) nowhere to be seen.
The incumbent board – which strenuously opposes the spill motion – notes that underlying earnings guidance has been maintained at $24m-$27m, with a five-year plan in place to more than double patient fees to $475mplus by 2027.
Given Pacific Smiles shares have lost around half their worth over the last year, there’s upside if performance is revved up – no matter who wins the board stoush.
Alternatively, investors might want to get their teeth into the long standing but low-key SDI (SDI), formerly Southern Dental Industries.
While SDI’S products are weighted towards aesthetics and whitening, its old staple of amalgam filling material remains resilient. Next year the company launches Stela, a tooth-coloured material that is also as strong as the grey-hued amalgam still used on molars. SDI posted record full-year sales of $95.2m, up 16 per cent, with freight costs crimping earnings by 18 per cent, to $7.3m. A 1.75c per share dividend took the total payout for the year to 3.25c – and we reckon a 4.5 per cent yield doesn’t hurt at all.
Our closing fun fact is that while 65 per cent of Australians never see a dentist, the coverage is middling with 61.6 dentists for every 100,000 people.
This is similar to the US and higher than the UK (52.7), while Germans and Japanese have 85 and 80 respectively. This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.