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Growth Portfolio: Pacific Smiles Group Ltd (ASX: PSQ)


Published 17-MAY-2016 00:00 A.M.


1 minute read

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Overview: Pacific Smiles Group Limited ("Pacific Smiles", "the Company") is an Australian health care company focused on dental services. Pacific Smiles operates a portfolio of dental centres at which independent dentists practice clinical treatments. Revenue is derived from fees charged to dentists for the provision of fully-serviced facilities. The company’s portfolio comprises 54 dental centres across Eastern Australia.

Catalysts: Earnings have consistently increased since 2008 at a compound annual growth rate of 22% per annum. Pacific Smiles is focused on organic growth and in order to maintain momentum, the company targets to open 10 additional centres per year. Management has a strong track record of strategically expanding Pacific Smiles’ portfolio, whilst maintaining a strong balance sheet, a continuation of this trend is the primary catalyst.

Hurdles: The opening of new dental centres is capital intensive and there is no guarantee that new facilities can continue to yield an acceptable return on shareholder funds. 40 percent of centres are less than 3 years old and have yet to demonstrate sustainable earnings potential. With management holding 46 percent of shares outstanding, the potential for minority shareholders to influence corporate governance and strategy is low.

Investment View: Pacific Smiles offers profitable exposure to the domestic healthcare industry. We are attracted to the Company’s growth trajectory, strong balance sheet, and management team. Whilst integration of new practices is a primary risk, the industry’s fragmented nature provides ongoing growth potential. We initiate coverage with a ‘buy’ recommendation for Pacific Smiles’ growth and income potential.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

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