07-May-2012
1300 SMILES, INVOCARE, MIDDLE ISLAND RESOURCES, CASTLE MINERALS, MT ISA METALS, GOLDEN RIM, TAWANA RESOURCES
Supply of dentists is vital to give investors something to smile about
ASX Code ONT, IVC, MDI, CDT, MET, GMR, TAW
Some investors are betting that the Townsville dental ''roll-up'' business 1300 Smiles will match another practitioner of this type of business strategy, the funeral home operator InvoCare. The former's 30 per cent rise in the past eight weeks suggests that its investors might be on to something.

The ''roll-up'' business model involves buying a large number of small operators for three times their earnings, then putting them into a business which is trading on a price-earnings multiple of 20 times and more (the average for industrials is 11 times). In the early phases at least, acquisitions can add to earnings growth from day one.

InvoCare is a definite success story, with a market value of more than $900 million and a share price that has almost doubled in three years. With its stock at $5.15 and a market capitalisation of $122 million, 1300 Smiles is fast becoming a success story, too. It was listed in 2005 after raising $1 million at 80¢ a share.

Phenomenal earnings growth is driving this success: the company has more than doubled its profits in the past three years, but can this breakneck speed last?

The stock is priced as if it will, trading on a P/E multiple of about 20 times. To keep generating profit growth of 20 per cent or more, 1300 Smiles needs to attract more and more dentists to regional Australia and keep them smiling, because they are its most important asset.

The company's managing director, Daryl Holmes (who keeps in touch with the profession by working half a day a week as a dentist), owns a 62 per cent stake. He dismisses any suggestion that there is a difficulty in finding dental professionals.

''We take away all the admin and management issues, and let the dentists concentrate on what they do best … I've just come back from the British dentistry convention and I met over 50 dentists wanting to relocate to Australia.''

GOLD RUSH

West African gold minnows could be in for a bit of excitement in the coming weeks.

Much of the exploration drilling occurs during a small window outside of the wet season. Then, in a rush, the miners get their samples to laboratories for testing.

Because there are too many samples and not enough laboratories in that part of the world, instead of it taking a month to test samples, it is taking three months.

The result is that there are many exploration results that are now overdue. We should be expecting news from the likes of Middle Island Resources, Castle Minerals, Mt Isa Metals, Golden Rim and Tawana Resources.

Aside from investors, the results will be scrutinised closely by the bigger players in the sector, namely Perseus, Newcrest and Gold Fields, which all have an appetite in this new frontier for exploration.

SOURCE: FAIRFAX

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