Pacific Smiles Group Ltd jumps 45% on ASX debut

The Medibank Private Ltd (ASX: MPL) IPO may have caught most investors’ attention today, but another small cap debuting on the ASX gave its shareholders a 45% stag profit.

Shares in Pacific Smiles Group Ltd (ASX: PSQ) were issued in the IPO at just $1.30, but jumped as high as $1.97 at one stage. Shares closed at $1.89, a 45% rise. That thrashed the pants off the 7% gains that Medibank shareholders saw.

But it seems valuations are being thrown out the window with recent IPOs.

At the current price of $1.89, Pacific Smiles is trading on a prospective P/E ratio of 32.3x 2015 earnings, and paying a fully franked dividend of 5 cents, for a yield of around 2.6%.

Medibank is currently trading on a 22.8x prospective 2015 P/E ratio, which appears expensive, given revenue growth is likely capped by regulators imposing limits on premium increases.

Still, Pacific Smiles may be one to watch. The closest comparison company, 1300 Smiles Limited (ASX: ONT), is currently trading on 2015 financial year P/E ratio of 21x. Both companies are aggregators of dental practices, with Pacific Smiles operating 42 dental centres with 250 dentists.

By comparison, 1300 Smiles owns and operates 25 facilities.

But given there are around 8,000 dental practices in Australia, both companies have plenty of room to grow through acquisition. The dental sector is estimated to be worth $8.7 billion, but characterised by small independent clinics and very few large corporate providers.

1300 Smiles has generally paid for its acquisitions through cash, and remains debt free. Pacific Smiles is currently debt free, but says it aims to add 6 to 10 new dental centres each year. The company owns 35 of its own centres, with another seven operated as nib dental centres. Pacific Smiles also has agreements in place with Medibank and NIB Holdings Limited (ASX: NHF) to encourage the insured members to visit Pacific Smiles dental practices.

Give the current valuation of Pacific Smiles, investors may be comparing the company to another very successful aggregator – G8 Holdings Limited (ASX: GEM). If the company can follow successfully in G8’s shoes, shareholders may want to hang on.

Here's another stock you might want to have a closer look at. It could be an outstanding performer in 2015 and beyond.

The Motley Fool's top stock for 2015 is a sexy ASX tech company with a stunning track record and plenty of room to run. Discover our analysts' hands-down favourite bet for 2015 in this brand-new FREE report. Simply click here to grab your copy. I already own it, and you might want to consider it too.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.