Abano shares gain as earnings, dividend impress

See also: Abano aims for $1 billion in dental revenue within 10 years

UPDATED: Abano Healthcare [NZX: ABA] shares gained after the specialist medical investor lifted underlying earnings 46 percent, and paid a fatter dividend, underpinned by its dental and audiology businesses.

The Auckland-based company posted a net loss after minority interests of $1.3 million, or 6.11 cents per share, in the 12 months ended May 31, compared to a profit of $4.5 million, or 21.55 cents, a year earlier, it said in a statement. That included a $9 million charge on the sales of its orthotics and pathology businesses, which reduced Abano's exposure to uneven government funding.

Underlying net profit, on which the company bases its dividends, rose 46 percent to $8.8 million, near the top of its forecast earnings, and revenue increased 5 percent to $222.2 million.

The shares rose 0.7 percent to $7.55, and have gained 7.8 percent over the past two weeks. The board declared a final dividend of 15 cents per share, payable on Aug. 21 with an Aug. 12 record date. That takes the full-year return to 25 cents, an increase of 19 percent on the 2014 financial year.

"Their dividend really came in ahead of expectations as well - all in all it was a good result," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "There was certainly some buying ahead of the results."

Abano flagged the impairment charges and likely loss when updating the market in April, saying the district health boards' switch to tendering for pathology meant Abano's former Aotea Pathology unit relied on short-term contracts. When it sold the orthotics business, it said the exposure to government contracts wasn't compatible with Abano's investment criteria to operate on a fee-for-service basis.

Departing chief executive Alan Clarke told analysts New Zealand government funding made up less than 3 percent of revenue, compared to 70 percent more than 10 years ago.

Abano said it expects to continue growing earnings in 2016, without providing more specific guidance.

The company's dental business lifted earnings before interest, tax, depreciation and amortisation 14 percent to $23.9 million on a 10 percent gain in revenue to $173 million, and Abano said the segment will remain its primary focus as it builds scale on both sides of the Tasman. In the first two months of the 2016 financial year, Abano has bought three dental practices, adding about $9 million in gross revenue, which includes dentists' commissions.

Incoming chief executive Richard Keys told analysts he's comfortable paying Ebitda multiples of about 3.5 times to acquire dental practices in New Zealand, and that will be a little higher in Australia, though that measure isn't a one-size-fits-all.

Abano is looking to introduce branded dental practices in Australia, and will then look to extend some New Zealand pricing initiatives across the Tasman, Keys said.

Australia accounts for about 60 percent of Abano's revenue, and the country's economic slowdown has seen a decline in high-end dental work that the company specialises in, such as crown- and bridge-work.

"We're still very long in Australia - the underlying engine they're getting it right, confidence will return and spending will increase," Clarke said.

Abano's audiology business lifted revenue 27 percent to $40.1 million, and posted Ebitda of $2 million, compared to an Ebitda loss of $2.8 million a year earlier.

The company's diagnostics unit, which includes revenue from the pathology business it's now sold, posted a 2.8 percent decline in revenue to $41.5 million and a 2.6 percent fall in Ebitda to $7.6 million. The unit now consists of Abano's radiology business.

Abano's rehabilitation segment, the former orthotics business, posted a 32 percent drop in sales to $7.7 million and a 39 percent slide in Ebitda to $1.4 million.

Both the diagnostics and rehabilitation units' revenues reflect that the pathology and orthotics businesses were sold during the year, so did not record a full 12 months' activity.

(BusinessDesk)