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I am an Australian value investor. I have gone to full time investing this year (2012) at age 36 and am passionate about helping other Aussie investors succeed. My website is
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Edge Seven Pty Ltd
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Edge Seven Value Investing
  • ASX: ONT - 1300SMILES Limited 0 comments
    Jan 21, 2013 1:17 AM

    ONT - 1300SMILES Limited

    1300SMILES Limited (ASX:ONT) principally provides the use of dental surgeries and practice management and other services to self employed dentists who carry on their own dental practices.

    1300SMILES Limited provides dental surgery facilities at 24 locations in primarily in Queensland (north east) of Australia. Specifically, the company operates seven locations in Townsville, five practices in the Brisbane metropolitan area, three dental practices on the Sunshine Coast, two practices in both Cairns and Bundaberg; and one practice in Rockhampton, Gladstone, Toowoomba and also Tweed Heads.

    1300SMILES Limited listed on the Australian Stock Exchange in 2005 and maintains its administrative headquarters in Townsville, QLD.

    Does this business have a sustainable competitive advantage?

    1300SMILES' main competitive advantage comes from its practice management and the administrative services it provides to self employed dentists. 1300SMILES provides the framework for self employed dentists to do what they do best after many years of training. 1300Smiles enables self employed dentist to provide dental work to their clients while taking care of the administration and activities involved in running a business on behalf of self employed dentists.

    A recent presentation by the company suggested that the majority of younger dentists completing their training are no longer interested in buying a dental practice and working in the one location for the rest of their lives. They are seeking a 'lifestyle' from their profession. Young dentists want the ability to travel and/or to work flexible hours that fit in with family and interests outside of work. 1300Smiles framework provides that solution to both young dentists wanting flexibility and more experienced dentists no longer wanting to manage a business by themselves.

    Another competitive advantage comes from the company's recently released 'Care Plan membership'. The care plan essentially provides two dental examinations and fluoride treatments per annum to members for about $1 a day ($14.99 a fortnight). 1300SMILES is essentially removing the barrier of the perceived high cost of a dental visit and putting regular dental care within reach of all of the population in and around their dental centres.

    What are the risks facing this business?

    A big risk to 1300SMILES is the federal government's decision to close down the Chronic Disease Dental Scheme (CDDS) at the end of November 2012. The CDDS provided medicare funding for people with a chronic medical condition in need of oral care and whose oral health impacted on their general health. 1300Smiles estimates that about 20% of all dentistry work nationwide was a result of people claiming under the CDDS. This means that all dentists including 1300Smiles face the potential of an ongoing 20% drop in revenue as a result of the CDDS closure.

    1300SMILES have sought to address this CDDS closure risk with the development of their low cost care plan.

    However, the permanent impact of this CDDS closure could depend on who wins the federal election this year. The current government has closed this scheme down in an effort to improve their federal budget situation. A new government may seek to reinstate the CDDS or a similar funding system. There is no guarantee either way however and federal politics may determine the chance of medicare funded dental care for those most in need.

    Is it run by able and trustworthy management?

    Dr. Daryl Holmes is the founder and Managing Director of 1300SMILES Limited having been a qualified dentist since 1987.

    Dr. Holmes has extensive experience in operating dental practices and an intimate knowledge of the management, administrative and other support services required in a dental practice. He has been instrumental in establishing the support network and suite of services that 1300SMILES currently provides to its Dentist customers.

    Dr Holmes is a classy individual who spends a number of weeks a year on board the Youth With A Mission Medical Ship. The YWAM Medical Ship provides medical and dental care to remote parts of Papua New Guinea and other remote settlements in the Pacific. An amazing act of generosity from someone who is no doubt very busy running a listed company and providing his highly trained skills for the benefit of those in need in the Pacific region.

    The company is run with a strong balance sheet with net cash to equity position of 22% as of June 2012. The company also generates a cash flow profit in the ball park of its net profit after tax.

    Is it trading at a bargain price?

    1300SMILES hasn't traded at a bargain price for quite a while. It was most recently near my estimate of fair value in the middle of 2011. This company regularly seems to have a couple years of future growth already priced into its share price.

    Rank2012 Actual ValuationToday's Share PriceMargin of Safety2013 Forecast Valuation
    Gold 1$3.42$5.36-42%$3.78

    *Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

    Here is a 3 year price chart for 1300SMILES

    (click to enlarge)


    In summary, 1300SMILES is a great business with the potential for many years of steady growth. The company has a wonderful manager and it produces good cash flow not dissimilar from net profit levels. It has a strong balance sheet courtesy of a conservative management style. The share price is regularly expensive with future growth of the business priced into its quotable share price.

    Disclosure: Dean Mico does own shares in 1300SMILES Limited

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