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dentalcorp Holdings Ltd.
(DNTL-T) C$8.68
2023 Poised for Solid Organic Growth (Price & Volume) Event
We are updating our estimates following the release of dentalcorp's Q4/22 results on March 23. dentalcorp reported Q4/22 adjusted EBITDA (IFRS 16) of $60.6mm, in line with TD/consensus at $60.3mm/$60.9mm.
Impact: SLIGHTLY POSITIVE
Overall, we view the release positively. Q4/22 results were largely in line with expectations and management provided an upbeat outlook for organic growth in 2023, kicked off by 7-8% organic growth anticipated in Q1/23. Organic results are being buoyed by robust price increases and reduced impacts from cold/flu/ COVID-19-related patient cancellations and doctor/hygienist absenteeism. Layering on the orthodontics/implant insourcing programs provides potential for record organic results in 2023.
Additionally, we are encouraged to hear that acquisition valuations continue to normalize (down ~15-20%) as the impacts of higher interest rates affect affordability for the associate dentists (still the industry's largest purchaser of practices) and private equity consolidators alike. In our view, the combination of improving organic results and more attractive acquisition valuations should position dentalcorp to handily achieve double-digit revenue and EBITDA growth in 2023 (we forecast ~15% revenue and EBITDA growth y/y).
There were no major updates related to the ongoing strategic review, which remains a key focus for investors. However, we believe dentalcorp's fundamental outlook for 2023 warrants consideration, particularly given the recession-resilient nature of demand for dentistry services against the current macro uncertainties. Furthermore, we believe dentalcorp's valuation will benefit as management executes on its plans to deleverage by 0.25 to 0.5 turns this year.
Outlook: Management expects Q1/23 revenue growth of 22-24% (above TD's previous 21% estimate), including an incremental $4mm-$5mm of acquired PF EBITDA (after rent). As a result, we have slightly increased our full-year 2023 SSSG assumption to 5% (from 4% previously), while leaving our EBITDA margin forecasts largely unchanged.
TD Investment Conclusion
We believe the strategic review could unlock additional value for investors through a possible takeover transaction. However, even under the status quo scenario, we continue to see attractive value in dentalcorp's shares at current levels, given potential to drive double-digit EBITDA growth from internally generated cash flows.
