Pacific Smiles Group Limited

PSQ Details

Business Update: Pacific Smiles Group Limited (ASX: PSQ) is engaged in the operation of dental centres. Recently, the company informed the market about the total patient fee and same centre patient fee growth for the month of October 2021.

• Notably, on a year-to-date basis ended 31 October 2021, the company recorded a patient fee of $63.1 million. On a year over year basis, patient fees tumbled 19.1%, whereas the same centre patient fee went down by 22.5% on pcp.
• With the ease of lockdowns by the government across the company’s dental network, it remained on track to accelerate the rollout program and opened an additional 3 centres, taking the total count of dental centres under the PSG banner to 116.

Key Financial Highlights for FY21:

• Rise in Revenues: For the year ended 30 June 2021, the company reported revenue amounting to $153.2 million, up 27% year over year. The increase was backed by growth in new centres opened in 2021, along with robust fees from patients in the same centres.
• Growth in Patient Fee: During the year, the patient fee grew around 29.3% amounting to $240.8. Same Centre Patient Fees witnessed a growth of 26% for FY21, driven by robust patient demand across all cohorts.
• Increase in EBITDA & NPAT: Underlying EBITDA for the period was $33.1 million in FY21, up 40.8% year over year. EBITDA to Patient Fees margin came in at 13.7%, up from 12.6% reported in the year-ago period. EBITDA was positively impacted by robust patient fee growth along with JobKeeper benefit. Underlying NPAT came in at $14 million, up 72.8% from the year-ago figure.
• Balance Sheet Position & Cash Flow: At the end of the year, the company reported cash and cash equivalents of $10.95 million, with total debt amounting to $70.38 million. Operating cash inflow in FY21 came in at $38.93 million as compared to $28.58 million in FY20.

Same Centre Patient Fee Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to a complex regulatory landscape. It is also exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions. The Group is exposed to forex headwinds and stiff rivalry from competitors developing similar product lines and services.

Outlook: The company is taking necessary measures to open news centres in the coming years, which will eventually contribute to the long-term growth and profit margins of the company. The company’s long-term strategies involve network growth via existing centres, extending the range of services and opening hours along with high functional leadership. Further, the company expects to open 20+ new dental centres every year.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of PSQ is trading above its average of 52-weeks low and high levels of $1.9-$3.08. The stock of PSQ gave a positive return of ~52% in the past year and a positive return of ~29% in the past three months. It has a support level of $2.17 and a resistance level of $3. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). The company can trade at a slight premium to its peers, considering the impressive growth in top-line, newly opened centres, and the plans for increasing the number further, higher patient fee, robust bottom line, etc. For this purpose, peers such as Capitol Health Ltd (ASX: CAJ), Integral Diagnostics Ltd (ASX: IDX), Oceania Healthcare Ltd (ASX: OCA), have been considered. Considering the current trading levels, steep price movement in past months, correction in valuation, volatility in the healthcare space, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $2.98 as on 23 November 2021

PSQ Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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