No Images? Click here May 2018 Smiles Inclusive listing on stockmarketWhat do 61 empty dental chairs tell us? Smiles Inclusive which listed on the stock market has recently traded at $1.05 having had a high of $1.16 and a low of $0.97. In reality the market is uninformed as to its true worth as doubts as to whether the practices purchased are exactly the same as used in the pro forma accounts in its pre-listing prospectus, and as the acquisitions were being bound up after people had subscribed, any information about the company must be taken with a proverbial grain of salt. On the information disclosed thus far it has purchased 52 practices with average fees a little over $1 million so it’s unlikely that there are many market leading practices in its stable. According to The Australian of 15th May 2018 the practices purchased have 154 dental chairs of which 61 are never used so it’s unlikely that dental fees are more than $56 million (or around $600,000 per chair in use) and possibly less. The number of chairs never used may be an indicator that many of the practices are on the slide! Surely they would have been used at some time in the past! While CEO Mike Timoney beats a loud drum the reality is that those 61 dental chairs which are never used will be extraordinarily difficult to fill in a dental market where virtually every dental practice has some spare capacity and in which there is a huge oversupply of dentists. According to The Australian the Smiles Inclusive listing was struck on an earnings multiple of 10 times – half that of its peers, 1300 Smiles Ltd and Pacific Smiles Ltd, because the practice acquisitions are yet to be completed! Indeed does anybody truly know what its earnings are? We continue to be sceptical about Smiles Inclusive Ltd. Unlike 1300 Smiles Ltd and Pacific Smiles Ltd, each of which were operating a chain of practices before they listed, this venture gives the impression of being cobbled together with smaller practices the number of spare chairs suggest that many of them are not in the best condition! The Corporate Reality The best of the practices for sale to corporates were swallowed up by the early movers. Many top performing practices are not available to corporates and pass from dentist to dentist, as older dentists or associated practice owners sell to younger employed dentists and retire. Size and Condition The size and condition of practices purchased by Smiles Inclusive suggest that it’s unlikely that many of them would have met the criteria for purchase by the established dental corporates. Hence it will prove to be a challenge to the management of Smiles Inclusive Ltd to ring a substantial improvement in performance out of them. We won’t have a reliable guide to its performance until the half year reporting cycle of listed companies with a 30 June balance sheet date, which will be in about April 2019, or a full year guide to performance until about October 2019 when its full year audited results are released to the stock exchange. It may take a miracle akin to the multiplication of loaves and fishes to create a result sufficient to impress the stock market in that short time and out of a collection of marginal acquisitions with a centralised management team brought together at the last moment. I’m reminded of the Warren Buffett observation that if you appoint new management to a poorly performing business, it’s usually the business which maintains its reputation. In this case, appointing a manager to a collection of relatively small dental practices with a number of spare chairs indicate that many must be in a run-down condition, means that the manager will be challenged to perform at a level which will impress the stock market. The big question Anybody thinking of investing in Smiles Inclusive Ltd needs to stop and ask themselves whether they can find better companies to invest in? As for dental practice owners receiving representations on selling their practices to Smiles Inclusive and retaining part equity, our strong advice is wait until it produces its first full year audited results to the Stock Exchange in September/October 2019 and do not consider selling until you have personally made contact with several vendor dentists who sold in the initial phase and you obtain their impressions to how it’s all working in a dentist to dentist conversation. Our prediction is that they may express disappointment. Best wishes to all dentists, Graham Middleton
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