1300SMILES (ONT) – Tomorrow’s Blue Chip Today

By Jason Fittler

This company has once again shown why old traditional values in running a business always produce a far superior result. While large companies both in an America and Australia are making excuses for poor performance, 1300SMILES has no need for excuses.

This reporting season the common cry from CEO’s is “It is time to get back to basics”; you will not hear this for 1300SMILES CEO, Daryl Holmes.  1300SMILES has always stuck with the basics and this is reflected in their half year results. The hard work of 1300SMILES over the past 5 years has now allowed them to achieve scale and build a sturdy business which has not been affected by the global economic down turn.

Highlights

1.    Revenue up 58%
2.    Profit up 83%
3.    Earning before interest and tax up 77%
4.    Earnings per share up 82% to 10.31c
5.    First half dividend up 35% to 5.4c.
6.    Cash flow from operations up 41%

But let’s take a closer look.

In the past 6 moths the company has reduced their total liabilities by $2.9 million while during the same period increased net assets by $1.9 million. So while most companies are selling assets to reduce debt, 1300SMILES has done this through smart use of resources from day one. It is also now paying a 4% full franked dividend to share holders, grossed up this is a 5.7% return.

How far this company can go is yet to been seen, given that the company has now arrived at critical mass allowing the company to operate at a scale where they can grow net profit faster than revenue I am comfortable in saying that this is “Tomorrow’s blue chip today”.  

It is no secret that I hold shares in this company and that many of my clients do. Our faith in Daryl Holmes and 1300SMILES has now been rewarded. During one of the worst falls in the history of our market this stock has out performed and will continue to do so.

Why?

They stayed with the basics, no fancy gearing or leveraging just simply old fashion business, this has put them at the front of the herd. As many large Australian companies look to change their business models back to basic, they could learn a lesson from 1300SMILES.