Maiden FY18 results – hits prospectus as expected
Smiles Inclusive (SIL) has released its first full year results. Given they provided a trading update in late July, there weren't too many surprises (a video of the trading update is included below). Statutory EBITDA was a beat on expectations, while net practice revenue variances were due to differences in prospectus settlement of practice timing of 1 April versus actual settlement occurring between 20 April to end of May. SIL posted a statutory FY18 net loss of A$5.0m after integration and acquisition costs of A$5.7m.
SIL recorded net practice revenue of A$6.1m since listing, slightly below forecasts due to practice timing and consolidation of a number of smaller practices. Practice EBITDA margin of 31% is impressive and compares favourably to its listed peers.
Overall a good result and in-line with revised prospectus forecasts. It's still early days and Smiles Inclusive have a few more boxes to tick to de-risk the business further (mainly around the ability to acquire further practices). SIL is (unjustifiably in our view) trading at around a 50% discount to its listed peers at 8.1x FY19F PE versus comp average of 17.1x. We believe organic revenue growth of approximately 2.5% is readily achievable considering the future impacts system integration completion, increased purchasing power, increased utilisation of spare seat capacity and marketing.
We anticipate further updates on the daily running of the business at the quarterly result.
No changes to core assumptions
We have rolled forward our model and made no changes to our core input assumptions. The impact to NPAT is an increase of 2.6% in FY19 and 0.4% in FY20.
July trading update
Mike Timoney, Chief Executive Officer for Smiles Inclusive (SIL), provided a trading update to the Morgans network in late July. You wan watch the presentation below:
Our valuation and share price target have increased slightly (Morgans clients can login to view). Smiles Inclusive (SIL) has made significant progress since listing approximately 4 months ago. Despite some timing issues around settlement, it appears well placed to achieve its growth plans in FY19.
SIL is currently trading on an undemanding FY19 PE of 8.1x, a 50% discount to its listed peers which we view as a buying opportunity. Risks include lower-than-forecast acquisition and chair utilisation rates.
We retain our Add recommendation.
Morgans clients can login to view our detailed report and share price target for Smiles Inclusive (SIL). Alternatively, please contact your nearest Morgans office for access.
Disclaimer(s): Morgans Corporate Limited was the Lead Manager and Underwriter for the initial public offer of shares in Smiles Inclusive Limited and received fees in this regard.
Analyst owns shares.
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