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Hey Jimmy, I also saw some details omitted from the filings but...

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frankbaozhu

143 Posts.

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20/09/17

01:14

Post #: 27329628
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Originally posted by Jimmy_C ↑

You're more than welcome.

Re: licence fees, i suspect you could drop a note to them and ask. They omitted OTC revenue from a report last year (i think), a shareholder asked for it, and they subsequently released it to the ASX, so i don't think they're deliberately obfuscating.

Re: DMA, yep, that makes sense to me. Very benevolent of them not to slug the patients with fees - basically 0% finance offered to the customer.

Re: your question in the initial post about where to find information about practice sales, it's disclosed in the annual reports. For example, in 2016 they sold one practice (Springwood), and it's disclosed under "significant changes in the state of affairs". You then look at the cash flow statement and see proceeds from sale of assets = $525k, so it seems as though they netted about $525k for this practice (although there's potentially other transactions in that line item). To then normalise the impact to operating profit, you have to go to note 34 (reconciliation of profit to cash from operating activities) - you can see there's a $302k negative adjustment there against gain/loss on sale of non-current asset, meaning ONT sold the practice for a $302k profit (so you have to strip it out).

Re: your comment to Mars above about the acquisition of BOH coinciding with a big increase in % of OTC revenue paid to self-employed dentists, i think that conclusion is correct albeit a little selective. Up to FY12, it was consistently the case that ~20% of OTC revenue went to self-employed dentists; this trend changed in FY13 (25.4%), and continued in FY14 (26.7%). When BOH was fully included in the accounts (FY15), it went to 31.3%, but it's since reversed a little and the last two years it's been at 31%. As mentioned in my prior post, i don't see the self-employed/employee dentist issue as critical in the overall scheme of things for ONT.

To be honest, i don't think things like licence fee revenue transactions from 6-7 years ago and split between self-employed/employee dentists are really the issue as far as the ONT investment case goes. The much more pressing issue as i see it is the lack of organic revenue & earnings growth experienced since FY14 - as i said in the other thread, their FY14 EBITDA run-rate adjusting for acquisitions was ~$11.8m, and that's roughly what they delivered on a LFL basis in FY17 (they earned $12.1m EBITDA in FY17, but i calculate that in-year acquisitions contributed about $300k of that, so LFL they did in FY17 almost exactly what they did 3 years ago). If you assume this is a zero organic earnings growth business into perpetuity, then FY18's EBITDA should be about $12.8m (add in $700k for annualisation of FY17 acquisitions), which implies you'd be paying (156/12.8) = 12x EV/EBITDA(f). Personally, i don't think paying ~12x EV/EBITDA for a zero organic earnings growth business makes sense no matter how good i think the CEO is at capital allocation / doing smart acquisitions. So i think here one has to ask themselves whether FY14-FY17 zero organic earnings growth represents the 'new normal' into perpetuity, or whether there were extenuating/temporary external factors which are likely to reverse in the near term. That's really what it boils down to, for mine.

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Hey Jimmy, I also saw some details omitted from the filings but I always try to be a big-picture guy(excuse my lack of ability to crunch numbers) so your comment about organic growth really ticked.

Do you think the withdrawal of government funding(20% of revenue gone overnight for the industry) and the mining recession played a role in zero organic growth?

Also wondering if you looked at PSQ. It seems to me they have some good assets pre IPO but the new ventures are not doing well. It is always a bad sign to borrow money to expand vs. internal funding. The operating lease obligation will also hurt their flexibility should the store performance deteriorate. ONT's 10 years lease goes at 10m, but PSQ has more than 70M and counting, despite ONT is only slightly less profitable than PSQ. Shouldn't people worrying about those off balance sheet debt? They also chose not to expense performance rights despite the fact that any options have intrinsic value. PSQ also is paying 87.2% of earnings as dividend while borrowing from bank. Those are huge red flags yet the stock is trading at 25 times earnings.

Travelightor, are you worrying about PSQ now? HaHa.

ONT has to do some big acquisitions to justify its valuation. Let's pray for the best!

ONT Price at posting: $6.51 Sentiment: Buy Disclosure: Not Held
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