Business Boost Expected For 1300SMILES

Small Caps | Mar 14 2019

Dental chain 1300SMILES has become more upbeat, expecting the typical surge in economic activity in North Queensland in the wake of the floods will boost its business.

-Activity could also be augmented by a recovery in central Queensland
-Small benefit from recent initiatives by Medibank Private
-Flexible payment strategies underpinning demand

 

By Eva Brocklehurst

Brokers are pleased that dental chain, 1300SMILES ((ONT)), has escaped the flooding in North Queensland with only minor interruptions to its business in the major centre, Townsville.

Moreover, the company has become more upbeat, indicating that a surge in economic activity has often been the case following such events, as the area is rebuilt and refurbished, and this should provide a boost to second half earnings and into FY20.

All seven of the company's centres in Townsville (there are 11 in North Qld) were affected to some degree by the flooding, although none were damaged by rising water or mud. No expensive equipment was damaged and insurance is covering any interruption and repairs.

Furthermore, Baillieu notes this activity could also be augmented by a nascent recovery in central Queensland. Wilsons, too, expects the focus to remain on regional Queensland amid a pick up in activity in the resources industry.

Baillieu retains a Buy rating with a target of $7.55, which it believes is supported by the company's track record of growth in earnings, at a 13-year compound rate of 10%, as well as the maintenance of progressive dividends.

Despite there being no acquisitions in the first half, current activity in this regard is described as "intense" and the company has flagged a significant announcement is imminent. To this end, Baillieu describes debt levels as modest.

Morgans considers the business is tracking well and in line to achieve its forecasts, recently upgrading to Add from Hold because of share price weakness. Morgans has a price target of $6.85.


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