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ONT - 1300 Smiles

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1300 Smiles Limited (ONT), formerly known as Townsville Family Dental Pty Ltd, provides dental surgeries, practice management and other administrative services to self employed dentists. It also provides general dentistry services to patients. The services provided by the company allow dentists to focus on the delivery of dental services rather than on the administrative aspects of carrying on their businesses.

http://www.1300smiles.com.au
 
Wonder when this stock will show up on here
i'm a shareholder..awesome business...excellent capital management ....strong return on capital....dividend increase each year
and this year tip for another double digit growth
 
I agree ONT I think we chatted about this one around 6 months ago.

I locked and loaded and filled up all I could get under $3.00 as per your opinion. Very happy to hold this one for the long term - it is now my 3rd largest holding.

The annual reports are a joy to read and love the capital management.

Thank you again ROE
 
That the way I like buying stocks
Few superb business the super star of asx but big position in each one that way it force you to be disciplined do plenty of research before capital is committed.....

The business I like best are the one that made 20 cents and I can take all the 20 cents out and put in my pocket.. Sound like nvt

When I find these business on the cheap I load it up regardless of law suit, negative news and crazy headlines because when the bad news are over it continue to deliver me that 20 cents and maybe a bit more
 
another year another increase payout, 6th year straight and counting, Another year to sit on my ass

if you own this stock remmeber to write email to Uncle "Dr Daryl Holmes" and thanks him for another awesome year

and tell him what a wonderful job he have done and the disciplines he put in place to allocate capital only to get high return

I did last year, I will do the same this year...

Dear Shareholder,

It is my privilege to present to you the sixth Annual Report of 1300SMILES Limited. The full year ended 30 June 2010
was outstanding, with record results on all significant measures. We finished the year with our biggest profit ever, and
we're starting the 2011 year with the largest established business we've ever had.

One result in particular leaps out at me: over the two years since the 2008 year, our Net Profit After Tax (NPAT) has
come within a whisker of doubling, up 98%. Staying with this two year view for a moment, since the 2008 year we have
also seen Total Revenue rise by 54%, Earnings Per Share (EPS) by 93%, and Earnings Before Interest and Tax (EBIT)
by 97%.

Shareholders will recall that our 2009 report reflected a substantial step upward to a much larger base business, with
exceptional increases in NPAT and EPS. The 2010 results show that that we have successfully adapted to our greatly
increased scale, as we have delivered more moderate but strongly positive progress on the key measures of interest to
shareholders.

Financial Results for the year ended 30 June 2010

Compared to those of the previous year, the key results for the year to 30 June 2010 were as follows:

NPBT up 19.0% to $6.2 million

Earnings per share up 12.3% to 21.0c per share

NPAT up 13.6% to $4.3 million

Final fully franked dividend up 20% to 7.2c per share

EBITDA up 14.8% to $7.4 million

Retained Profits up 40.9% to $6.2 million
 
ROE said:
Final fully franked dividend up 20% to 7.2c per share

Retained Profits up 40.9% to $6.2 million
Click to expand...

At today's closing share price ONT is yielding 5.65% gross (approx) so perhaps fair to say the stock is near the top of its range based on yield, considering the Market cap and the small amounts of money it deals in....many investors/funds etc just wont touch small caps.

Still there delivering growth and profit and that's what any investor wants..still wont surprise me to see this go sideways for a while...like JBH has done for 7 months.
 
No idea I let people time the market when to jump in and out

most stocks I hold dividend just increase each year while I sit around
and do nothing.

I don't buy stock just based on yield, it's a lot of factors that make up the intrinsic value

Bigger yield always helps but sometimes you enter it with 3% and end up with 15% yield because the intrinsic values of wonderful business will gives it the ability to increase its dividend payment over time.

If you buy ONT your return on dividend alone now nearly pay for the initial investment.
and that just 5-6 years ago ....not many business can deliver such stunning result....another 5 years the dividend alone will double initial investment and when a business deliver such awesome results you should see the unrival capital appreciation that goes with it..

during this time ASX (2005-Present) return 4% .... ONT return 300% .... talk about super stars
there are only a handful of superstars on the ASX, when I spot them I put all my eggs in that basket

Uncle Warren Once Said

Time is the friend of the wonderful business. It's the enemy of the lousy business. If you're in a lousy business for a long time, you're going to get a lousy result, even if you buy it cheap. If you're in a wonderful business for a long time, even if you pay a little too much going in, you're going to get a wonderful result if you stay in a long time.

Compared ONT and lousy PRY where fund mangers love them and you see which is a lousy business and which is a wonderful business
 

Did a search on google re:ONT and came across this site. Had to register to be able to contribute so I hope you guys are smart enough to take some advice while you have still have time. I am guessing share price may still have a few years to run but this is not a long term company!
First of all read the managing directors annual report it is available thru the ASX site online.
The managing director warns against companies that are buying up high grossing self managed practices of "super" dentists and reporting there profits as the companies profits.
What these companies do is they offer these dentists a purchase price which cannot be refused. The dentist is offered an amount that is 3-4 times the value for which they could sell to collegues. The capital gains tax concessions mean the dentist has huge incentive to take the deal. Part of the contract is the dentist must continue to work for 2-5 years. Effectively the dentist has taken his next 5 years "wages"as a capital payout which maybe tax free or 50% discounted. These dentists work out the contract and leave! The company reports great profit while they are there but is building up a balance sheet of grossly overvalued "goodwill" There is no goodwill it leaves with the key dentist/s.
1300smiles MD warns about this in his annual address but it is exactly what his company is doing. A total confidence trick on his part.
1300 even renegotiating sales contracts after dentists have failed to meet their earn out provisions so that they can continue to capitilise their (dentist wage) expenses and report great revenue.
As the practices they have bought lose the key dentists they replace them with foreign dentists many of them "straight off the boat " and the individual practice profitablility crashes to barely break-even as these dentists in many cases burn up the remaining "location"goodwill with high fee's and inaptitude. To keep reporting revenue growth they buy up more super performing practices practices about 1-2 per year and in this way keep there revenue growth.
The MD says in his report that "it is not practical to report profitability of individual practices because they cannot accurately apportion the costs of the centre management in Townsville" This is rubbish they provide individual profit reports to the practice managers. If this data was released to the Market it would show that they are progressively running the high performing practices they have bought into the ground.
If you doubt the veracity of this post look up the Mackay practice on the 1300 website (all indian names) about 4-5 years post purchase. I suggest at the next share holder meeting you ask for some indivdual practice figures. You will see the pattern the high profit practices are the ones they haven't had control of for long.
The above is the informed opinion of one person only
Take it or leave it my friends
 

This would be the opposite of what ONT has done in the past, they have a stated policy of not over paying for new practices and past performance seems to back this up.


ONT seem to add more chairs to aquired practices and also open up 'greenfield' new practices.


There is a national shortage of dentists as with doctors, look up your local phone book you will find a fair % of Indian names at most medical centres.



Interesting post and if true ONT should have a steeply declining ROE and significanly higher debt, I will watch with interest but continue to hold.
 

Interesting molar...thanks, you have sparked my curiosity.

robusta said:
This would be the opposite of what ONT has done in the past, they have a stated policy of not over paying for new practices and past performance seems to back this up.
Click to expand...

So i read thru the last ASX announcement (Managing Directors address to Annual General Meeting) and i couldn't help but think it was all a bit of a sales pitch, lots of positive speak and mention of happy customers and happy dentists, low cost organic growth and extra chairs etc...low debt, EPS growth and dividends but no details, no nitty gritty. i was almost expecting to scroll down the page and be offered a free set of steak knifes if i was in the first hundred callers.

Outa curiosity ive looked at a few acquisition announcements and they all seem to be a little lite on detail....price and terms.

Bundaberg http://www.1300smiles.com.au/storage/20080627 ONT acquisition Bundaberg.pdf

Toowoomba acquisition and completion and no mention of money
http://www.1300smiles.com.au/storage/18-2-08 Acquisition of Toowoomba practice.pdf
http://www.1300smiles.com.au/storage/Twba Acq'n Completion - 18 Apr'08.pdf

I hold alot of stocks and im reasonably confident that when they buy or sell something they general say how much and in general what the terms were...seems strange that ONT don't.

Turns out the acquisition dollars eventually do get a mention in the annual report (page 33)
http://www.1300smiles.com.au/storage/1300SMILES Annual Report 2008 .pdf


robusta said:
There is a national shortage of dentists as with doctors, look up your local phone book you will find a fair % of Indian names at most medical centres.
Click to expand...

Ill quote from page 31 of this June 2010 Govt document (Skill Shortages Australia)

Dentist - Regional Shortage

http://www.deewr.gov.au/Employment/LMI/SkillShortages/Documents/NationalSkillShortageReport.pdf

robusta said:
Interesting post and if true ONT should have a steeply declining ROE and significanly higher debt, I will watch with interest but continue to hold.
Click to expand...

I find it a little strange how ONT have deliberately pitched there company to Value investors, Buffet even gets a mention in the 2008 annual report. :dunno:
 
When a company relies on the service of highly educated professionals who are usually pretty smart and have more loyalty to their profession than their employer/company, the risk of them leaving is always significant.

There is no doubt some company does it better/worse than others.

RHC has increased profits year after year.
PRY has mis-treated their GPs and their GP clinic profitabilities are way down.
VGH is similar to ONT except they do eyes instead of teeth. Just have a look at their share price chart since 2005!

The lack of disclosure in acquisition of individual practices imo is fair enough. Some practices are 1-2 people and they probably don't like to have their finances disclosed to the whole industry.

Everything Molar raised are potential concerns, but if they are true there would be evidences in the numbers... falling ROE, falling revenue per practices etc. Anyone care to dig them out??
 


As outsiders, it is impossible to tell what exactly is going on in the business. If you believe we need to know the business inside-out to make an investment, it is almost impossible to ever put money in any stocks, unless you are an insider. Therefore, when investing in businesses, we have to be reasonably sure about the integrity of the management and the quality of businesses.

That being said, without being an insider, what we said here are mostly guesstimates and speculations. Molar, I think your comments are intriguing. But I was wondering of the many claims you had, how much of them was supported by facts? You said the company is overpaying for the clinics, do you have any hard evidences to support your claim? And I was also wondering other than Mackay your mentioned, do you have first-hand data of all clinics to support your arguments? It seems to me you are confused about opinions and facts.

Here are my questions and hopefully you can answer them:

"1300 even renegotiating sales contracts after dentists have failed to meet their earn out provisions so that they can continue to capitilise their (dentist wage) expenses and report great revenue."

Based on your comments, you are probably reasonably sure about your assertions. Do you have any facts behind them?

"As the practices they have bought lose the key dentists they replace them with foreign dentists many of them "straight off the boat " and the individual practice profitablility crashes to barely break-even as these dentists in many cases burn up the remaining "location"goodwill with high fee's and inaptitude. To keep reporting revenue growth they buy up more super performing practices practices about 1-2 per year and in this way keep there revenue growth. "

Again, if ONT never revealed the specific numbers for their clinics, how did you know the profitability of them? In addition, there is nothing wrong hiring qualified foreign doctors since they are of equal quality and less costs. Why would you think hiring them is a burn-up of location goodwill? And also the last sentence, I would like to hear your analysis on the financials.

"The MD says in his report that "it is not practical to report profitability of individual practices because they cannot accurately apportion the costs of the centre management in Townsville" This is rubbish they provide individual profit reports to the practice managers. If this data was released to the Market it would show that they are progressively running the high performing practices they have bought into the ground."

OK, this one is a bit outrageous. It is common sense that if you run a company with many individual profit center or subsidiaries, you have the segment reporting that lists corporate expense to offset the profits generated in the subsidiaries. I have read thousands of financial reports and I have never seen anyone raised the questions about the expenses on the corporate level. Think about it, if ONT hires people in the headquarter, is it going to charge individual profit center? Or if the HQ buys office supplies, should it charge individually? It states very clear in the AR the HQ provides all necessary services to the clinics so the doctors can focus on their patients. What is wrong with that?

"If you doubt the veracity of this post look up the Mackay practice on the 1300 website (all indian names) about 4-5 years post purchase. I suggest at the next share holder meeting you ask for some indivdual practice figures. You will see the pattern the high profit practices are the ones they haven't had control of for long.
The above is the informed opinion of one person only
Take it or leave it my friends"

So what is wrong about Indian doctors? Are the inferior to white doctors? Or they are less qualified? You are misleading the readers using irrelevant facts.

Personally, I really doubt your opinions are informed or they were supported by hard facts. Guesses and speculations are good starts to an investment, but in no way they should be abused to blast a company you have not thorough understanding.

Maybe I sound very personal here, but I really hope my questions can be answered and misconceptions can be corrected. Molar, with all due respect, please let me what you think of my comments.

Fan
 
As I said, I have researched many companies worldwide and I know ONT is a special one after reading the AR for 5 mins. Here are a few facts that you guys would want to know.

Use google map to look at the HQ. And you would not believe your eyes. It is located in the old 2-story building and the ground floor was leased out. Last year ONT earned 4.3 million on 22 million revenue, you must be wondering how come the margin is so high.

The pay for all directors and executives are the lowest I have seen after reading 200+ annual reports in Austrilia companies. With 6 years of profit growth, last year top management and directors as a whole were paid less than 300,000. That is less than 50K per person!! Can you guys pinpoint any company with simliar profitability paying so little to its MD and majority owner?

1300 has also 0 stock options while unprofitable companies giving millions of options to insiders. How many percent of companies listing in Australia do not issues options?

When I look at companies, I look at what management does instead of what they say. If MD wants to pump the share price by misinforming investors, why he never sold a single share? Why would he not have a better office? Why would he just issue a lot of options to himself, since any option plan will be passed for sure. Why would he pay a lot more to himself? And why on the earth MD is still spending half a day treating patients after becoming a mulit-millionaire?

I guess self-claimed "informed opinions" just matter a lot more to people who need opinions.

Fan
 

Your coming across as quite a fan boi there Fan ...Have you considered why the good Dr Holmes has done so much to appeal to "value" investors? whats in it for him?

Dr Holmes owns 68% of ONT and the top 20 hold 87% so who really benefits the most from the SP going up? if we take it for granted that the top 20 are net holders of ONT then its the holders of the other 17% doing the bulk of the trading...value investors and punters running the price up.

Its a given that the bulk of the buyers are value investors buying because ONT ticks all the "value" boxes...assuming the Dr has held his shares since the float at 80c he is now sitting on a windfall 400% profit not including all them juicy dividends....also interesting to note form this years annual report is the fact that escrow is the 2nd biggest holder of ONT shares..847000 shares sitting in escrow, im assuming these shares are held by dentists they brought out and thus needed to hang around.

Its a great plan when you think about it....a decade of buying 2 or 3 new dental practices per year and issuing 200K or so new shares for each practice and then justifying this to the value brigade as earnings positive and a very minor dilution, all the while upping the divi every year with most of it going into the largest holders pocket..more value punters getting on board every year while the MC & SP just keep on climbing to the over whelming benefit of just one man.....its a great plan.
 

To be honest I just did not get your point here. As a shareholder, you benefit as much from the increasing dividend as the biggest shareholder. If you argue otherwise, I would say that every share has equal rights to a small part of the company have not registered in your mind. If the share price going up every year, does it matter if it was done by value investors or speculators? If you have been a shareholder holding 100 shares since the listing, you would make the exact same percentage as MD.

A big difference has to be made between shares given when the acquirer is not a public company and when the acquirer is already a public company. It is hard to tell if ONT forced the doctors accept the shares as payment, but those are directly from annual report:

"Ordinary shares were allotted during the year pursuant to
the Bundaberg acquisition agreement on the practice
meeting revenue and earnings targets.
The company allotted (i) 43,103 fully paid ordinary shares
at $2.90, with no shares held in escrow, and (ii) 50,000
fully paid ordinary shares at $2.50 with shares held in
voluntary escrow for 3 years and one third being released
from escrow annually. "

Let me assume the 50000 shares were taken by the seller unwillingly in the transaction, and they really wanted the cash. But look at this one directly from 2008 annual report:

"Included in sundry creditors is a Deferred settlement of $782,523 on the purchase of the Bundaberg practice. By way
of consideration the Company will allot shares under escrow, ex-dividend with the number of shares based on the
greater of:
a) The volume weighted average price for the 6 month period up to 30 June 2008; or
b) A share price of $2.75 per share
Further Deferred settlement of $1,636,697 for the Bundaberg practice is payable over the next 5 years with the last
instalment due September 2012 upon certain revenue and profit benchmarks being reached"

So the doctors screwing around because of 125K dollars in the escrow shares while they got paid 2.5 million in the sale? What kind of logic they have?

Let's look at the majority of escrow shares you mentioned. Directly from annual reports:

"Ordinary shares were allotted during the year pursuant to
a company loan funded program to incentivise senior
management and consultants. The company allotted
566,000 ordinary shares at $2.65 and 120,000 ordinary
shares at $2.70. Shares are held in voluntary escrow with
approximately even release from escrow until 2015.
The company loans are unsecured. Should the
shareholder sell down shares a proportionate percentage
of the outstanding loan is required to be repaid. Interest
on loans is charged on commercial terms. "

So all the shares were issued voluntarily this year to incentivize management and doctors. And for the privilege to hold the shares, doctors have to pay 6-7% on the interest from their own pocket and if the price of the shares go down, they will probably lose a lot. Why those fat cats want to take such an arrangement? They have got all they want in the sale, why would they want to hang around just for the escrow shares?

As for your great plan comments, it makes me wonder if you live in a world of conspiracy. Earnings up, share price up, dividend up and you are saying it is because the insiders wanted to enrich themselves? And I was wondering, how did you know the details of the great plan? For one, your math is not incorrect. If you buy 2 or 3 new practices every year, you will not be able to sustain your growth rate. Second, ONT has paid cash in majority of the transactions. How do you know they are going to pay 200k shares in future transactions? And the comment about dividends just showed your total ignorance about investing. If every single share was paid the same amount of dividend, how can you accuse someone benefitting more simply because he has more shares? If what you said is true, then most of the CEOs with significant holdings in his own company are just hypocrites. That is because all they want is to get revenue up, EPS up, dividend up and make big bucks along with fellow shareholders. What is wrong with that?

Corrections about comments I made, the CEO did sell shares in 2005 and 2009. My apology.

Fan
 
1300 as a Dental Practice has issues. The question is whether these issues will affect 1300 as a Business.
Practice Managers are told to keep it tight. This results in cutting corners, cheaper materials, lower treatment quality and ultimately dissatisfied dentists and patients. They often don't provide enough time for dentists to do good work, because they keep trying to squeeze patients in for more $$$. Dissatisfied dentists means high turnover of dentists, which means loss of patient loyalty. These patients then go to private dentists where they can get some stable treatment . Ultimately leading to less EPS for 1300.
 

Fan or is it Dr Fan,
How's the weather in Townsville. Cowboys shaping upfor a good 2011?
You are coming across as very confrontational. Maybe you have 70 million reasons why don't want these questions to be asked?

I don't have to prove anything. You can listen to me or not listen to me won't make one IOTA of difference to me.
If you do have money in there (and you are not the MD himself) then you should ask the following questions!
1. How much cash and shares are 1300smiles paying for these practices that they buy?
2. Are these contracts conditional on the dentist working for 3-5 years in the practice? ie the purchase price paid for the practice has capitilsed part of the expense for that dentists wages for the next 3-5 years.
3. Why won't management release the figures for individual practices? Is it true that the individual practice profitability Is falling once the original dentists leave, despite introducing increased chair numbers? Is the growth in total business earnings made up by buying more high end practices whatever the cost so that their earnings can be reported as profit! and the overall company report great revenue growth?
4. Graham Middleton is an accountant at a company called Synstrat he has extensive experience in valuing dental practices and writes in the ADA federal newsletter. If you want investment advice on this company or any other dental company track him down!
5. If as the MD says in his report 1300 is so great at running dental practices are they attracting Australian trained graduates of any nationality or are they taking applicants who would work anywhere for an Autralian VISA.
6. Are 1300 smiles patients happy? Can the company provide any survey data to support this taken from one of the practices after the selling dentist has left and 1300 management has moved in?
7. What percentage of dentists now working for 1300smiles have been there for longer than 12 mths?

The number one question is " Is the business being run to be a long term profitable business or is the number one goal to report revenue growth and thus increase the SP."

cheers
NOT A FAN
 
Molar, I apologize being confrontational. If you have posted your questions instead of outright assertions in the previous post, I would not have had to make my point so strongly.

The questions you mentioned are all good ones. It seems worthwhile to do a thorough investigation towards your concerns and I will get back to you when I have the answer, though there are quite a lot of them I can only guess.

And FYI, I am neither a doctor or an insider. I am not interested in defending the company as well. The only thing I want to do is to make this thread a fair ground for all of us to post well-thought and well-reasoned opinions and hard facts.

Fan
 

I guess if you dare to make those statements publicly instead of posting it on a forum, you will be sued like hell for libel. Why you did not make your comments using your original ID? Afraid of something?
 
This thread has a heap of good info from both sides. Lets please stick to the facts and (reasoned) opinions without being confrontational or baiting each other.


frankbaozhu said:
I guess if you dare to make those statements publicly instead of posting it on a forum, you will be sued like hell for libel. Why you did not make your comments using your original ID? Afraid of something?
Click to expand...

Further posts like this will be removed and infracted as they add nothing to a thread. I do not see how someone expressing their opinion can be sued, otherwise every AGM would result in court cases. Anyway, a company with more than 5 (i think) staff cannot sue an individual for defamation.

Keep the thread on track please guys
 
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