1300SMILES has consistently provided growing revenue, profits and dividends.
This half is the first time we have seen a pull back with revenue down 30%, Net Profit down 36% and dividends down 35%.
The company share price fell 21% from recent highs on the back of the news but is currently only down around 10% from recent highs.
Why only a slight fall in the share price on the back of this result?
The expected result was because of spending cuts by the government.
The government cut out its Chronic Disease Dental Scheme or CDDS back in December 2012. This scheme was worth around a billion dollars to the dental industry in Australia. Shareholders knew this would affect 1300SMILES at some point.
The fact that it took this long is shows that the 1300SMILES model is flexible enough to adjust to hash economic conditions.
So what now?
The gross expected dividend for 2014 will be around 3% but this was never an income play it is about the growth.
The company revenue and profits are back where they were in 2010/2011 years. This is the new base line that the company will need to improve on.
They have the $1 a day dental plan offering that is selling well. The company has room to expand. And there are plenty of small practices out there that are hurting. Because of this there will be more opportunities to acquire and expand in the future.
The quick rebound of the share price from the intra day’s lows after the announcement indicates that there is still plenty of demand for the stock. This result shows that the 1300SMILES model works.
Long-term shares holders are still sitting on large profits.
The company now needs to focus on continue growth in the post CDDS world.
For more information about 1300SMILES (ONT) please contact us on 07 4771 4577.