Post by
retiredcf on Jul 22, 2022 7:35am
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EQUITY RESEARCH
July 21, 2022 Flash Research
DENTALCORP HOLDINGS LTD.
Q2/22 Earnings Preview
Our Conclusion
Q2 will be an illustrative quarter for dentalcorp as investors look for an easing
of COVID-driven pressure on patient demand/provider availability as well as
evidence of the resilience of consumer spending on dentistry in the face of
elevated inflation and macroeconomic uncertainty. We will also be looking for
a quarterly update on the practice acquisition market, same-practice sales
growth progress as economies reopened in the second quarter, the impact of
cost and wage inflation, and management commentary on the merger of two
of DNTL’s largest competitors.
Key Points
Q2 Expectations: We forecast Q2 revenue growth of 20% to $314 million,
with growth in line with levels observed in H2/21. On profitability, we are
modeling adjusted EBITDA of $57 million at 18.3% margins. We continue to
closely monitor margin trends given inflationary pressure, but believe that
dentalcorp is well positioned to protect margins through long-term supply
contracts, provincially mandated price increases, and growth within higher-
margin insourcing programs. On the acquisition front, we forecast $11 million
in acquired pro forma EBITDA in the quarter at an average multiple of 8.0x,
elevated above historical average levels of 6.x-7.0x, due to expectations of
additional mid-market acquisitions in the quarter.
Omicron Impact And Pent-up Demand: After Q1 results were negatively
impacted by Omicron, leading to -3% same-practice sales (SPS) growth, we
are expecting an improving environment in Q2. While COVID is likely to have
remained a limiting factor to some extent in the quarter, provincial economies
benefitted from broader reopening in the second quarter. Improving SPS
growth in the quarter would be a positive signal of the resilience of the dental
market in an uncertain environment as well evidence of pent-up demand for
dentistry services after 2+ years of COVID impact.
Keeping An Eye On Acquisition Multiples: dentalcorp’s practice
acquisition multiples have ticked upwards in recent quarters owing in part to
a number of mid-market networks acquired at higher multiples. While we
expect that DNTL remained active in the mid-market during Q2 and multiples
to be somewhat elevated as a result, we will be monitoring acquisition
multiples and commentary on the practice acquisition market, particularly in
the wake of the recently announced merger of 123Dentist and Altima
Dental.
Outperformer
DNTL-TSX, Sector: Health Care
Current Price (7/21/22): C$11.09
Price Target (12-18 mos.): C$18.00