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1300 Smiles on South Australia

Dental aggregator, 1300 Smiles Limited (ASX:ONT) has expanded into South Australia for the first time.

1300 Smiles announced last week that it had acquired a six surgery dental practice in Adelaide’s central business district. It’s the largest move to date from the company’s Queensland origins and represents a significant step in its plans to take the brand nationally.

The company didn’t say how much the practice would cost, advising that it was not financially material, overall, but would make an immediate contribution to both profit and earnings per share. 1300 now owns and operates 25 dental practices, with operations now in two states. Dental Corp is the largest dental care network in Australia and New Zealand with 175 practices.

In the last half year to December 2012, 1300 Smiles delivered its best ever half year results, with net profit after tax up 16% to $4 million, while revenues rose more than 20% to $21 million. Over-the-counter revenue rose by 34% to $29 million, almost as much as the company made in the entire 2010 financial year.

“We have worked hard to provide more affordable means for people to access dental care, and this is vital when we consider the effects of poor dental health on the community,” CEO Dr. Holmes said. “It’s a national embarrassment that 70% of all Australians do not regularly go to a dentist.”

The company also announced the introduction of a dental care plan, which is targeted at those Australians who don’t visit the dentist because of the perceived cost. For $14.99 per fortnight, members can receive 2 examinations, 2 x-rays, 2 scale & clean and 2 fluoride treatments, as well as discounts on additional treatments.  This should become an additional driver of growth for 1300 Smiles, along with interest-free payment solutions.

The company is also taking advantage of the consolidation in the dental industry. More than 60% of dentists are in private practice, and the company has a disciplined approach to acquiring new practices, with low debt levels.

Growth is likely to come from more acquisitions, expansion of existing facilities along with increased productivity from dentists. With an estimated 1% of the dental market, 1300 Smiles has plenty of room to grow.

Foolish takeaway

With the CEO being a practicing dentist and owner of 62% of the company’s shares, investors can be confident that management’s interests are aligned with shareholders. In fact, the CEO receives a token salary, compared to other CEOs, instead relying on dividends from his shareholding. With growth likely to continue, 1300 Smiles is one for your watchlist.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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