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1300 Smiles Limited shares lift after delivering toothy results

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The 1300 Smiles Limited (ASX: ONT) share price has lifted today following the release of the company’s first half results. Smiles Shares are currently trading at $6.35, up 60 cents or 1% from yesterday, just below this year’s high of $6.38.

1300 Smiles business

Smiles owns and operates full-service dental facilities across New South Wales, South Australia, and Queensland. The company seeks to continually expand its presence throughout Australia by establishing new operations and acquiring existing dental practices. 

Smiles provides the use of dental surgeries, practice management, and other services to self-employed dentists who carry on their own dental practices. This allows dentists to focus on the delivery of dental services rather than the administrative aspects of running their business. The dentists pay fees to Smiles for these services and in some circumstances Smiles also employs qualified dentists. 

1300 Smiles results

Statutory revenue was up 14.5% to $23.5 million, while Over The Counter revenue (Smiles’ internal measure) was up 7% to to $32.1 million. Smiles reports that its practices have generated solid same-store sales performance of 0.6% across the comparable store group, excluding recently acquired or divested practices. 

The application of the new standard AASB 16 has resulted in a significant increase in reported earnings before interest tax depreciation and amortization (EBITDA), which was up 36% to $9.4 million. If the impact of AASB 16 is excluded EBITDA is up 11.2% to $7.9 million. AASB 16 means that rather than treating rent payable under Smiles’ leases as an expense, the right to occupy premises under a lease is assigned a capital value which Smiles must depreciate over time. 

Smiles reported net profit before tax (NPBT) of $6.1 million, an increase of 3.7% from $5.8 million in 1HFY19. After adjusting for AASB 16 NPBT becomes $6.2 million, up 5.9%. Net profit after tax (NPAT) increased by 6.8% to $4.4 million. Earnings per share increased by 6.8% to 18.52 cents per share, while the interim dividend increased 6% to 13.25 cents per share. 

Acquisitions and divestments 

Smiles acquired two healthy dental practices in the half located in Gatton and Laidley (both in Queensland). It also sold one location during the half year and another in January. The practices acquired in FY19, being Springfield Lakes, Maroochydore, and Strathpine Central, have been integrated into the group and are performing well under their new ownership as well as delivering good patient outcomes. 

Outlook

Same store sales growth has continued and strengthened in the second half of the year. Smiles says it aims to deliver profitable expansion which means from time to time it will make sense to sell practices. Managing Director Daryl Holmes stated that Smiles neither acquires or retains practices to inflate the number of sites it operates. 

Floods in Townsville this time last year caused minimal disruption to Smiles’ operations, and practices in flood affected areas have resumed steady growth. Smiles also escaped the impact of this year’s bushfire season with no facilities affected or operations interrupted. Mining activity is beginning to pick up which is underpinning steady growth in Smiles’ operations in several regional centres. 

Future growth will be driven by attracting more dentists to existing facilities and expanding those facilities which are at capacity, as well as establishing new practices and acquiring practices on favourable terms. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 1300SMILES Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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