Today Pacific Smiles Group Ltd (ASX: PSQ) released its half-year report for the period ending 31 December 2018, with underlying net profit down 8.3% to $4.5 million.

Pacific Smiles is a dental service organisation which provides fully equipped dental practices for independent dentists to operate out of.

Key Results

Pacific Smiles reported:

  • Revenue up 18.5% to $59.8 million
  • Underlying EBITDA up 2.5% to $11.2 million (click here to learn what EBITDA means)
  • Underlying net profit after tax (NPAT) down 8.3% to $4.5 million
  • Interim dividend unchanged of 2.3cps fully franked.

Pacific Smiles also reported they opened 3 new Pacific Smiles Dental centres in the half bringing the total number up to 82 centres on 31 December 2018.

Management Commentary

CEO Phil McKenzie who was appointed in the period said, “I am pleased with the continued positive growth trajectory of Pacific Smiles, as we continue to gain share in a market that remains competitive and value conscious. Our growth strategy remains underpinned by dedicated and motivated practitioners operating alongside our professional support staff.”

Investing For Growth

Pacific Smiles said business initiatives were undertaken during the half to “support the ongoing growth strategy and improve our competitive advantage in the market” included:

  • 7 additional (dental) chairs commissioned in existing centres
  • Upgrade of existing North Paramatta NIB centre and relocation of Drysdale centre
  • Record intake for the dentist graduate program
  • Implementation of a digital scanner pilot
  • Increased focus on developing employees through expanded high achiever development programs, boosted traineeship programs and field-based trainers.

It seems Pacific Smiles’ idea of a competitive advantage is a little different to mine. There is nothing to stop a competitor such as 1300 Smiles Ltd (ASX: ONT) doing similar things.

Rask Perspective

The strategy in partnership with health insurance provider NIB (ASX: NHF) seems to be a ticking time bomb for margin compression. I think, sooner or later, NIB will be dictating the prices they are paying for their members. It is one of the things that 1300 Smiles Managing Director Dr Darryl Holmes has warned about. For that reason, 1300 Smiles is my top pick for dental service organisations.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).