Daily ShareChat: Abano Healthcare

If Abano Healthcare's Bay International can replicate the success of the about-to-be-sold Bay Audiology in New Zealand, it will create significant value for shareholders, says Forsyth Barr analyst John Cairns.

Bay International is a 50-50 joint venture between Abano and Bay Audiology founder Peter Hutson and "we view his involvement very positively," Cairns says.

His forecasts don't assume any contribution from Bay International because it is currently generating losses and isn't expected to break even at the earnings before interest, tax, depreciation and amortisation (EBITDA) level until the year ending May 2011.

Cairns is forecasting annual net profit will rise from $9.7 million this year to $77.3 million next year, reflecting the profit on Bay Audiology's sale, and drop to $6.4 million in 2011 before rising to $9.4 million in 2012.

He says after the $53 million return to shareholders from the Bay Audiology sale, net debt will fall from $97.3 million at May 31 this year to $35.8 million as well as extinguishing the potential liability from buying out the Bay minorities.

The Bay Audiology sale will enable Abano to more aggressively acquire dental practices, Cairns says. "The expansion of the dental operation is only just starting to gain earnings momentum," he says. Dental EBITDA jumped from $2.3 million in 2008 to $7.4 million in 2009 and Cairns expects that will double over the next two years.

BROKER CALL:  Forsyth Barr rate Abano Healthcare as buy.

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