Daily ShareChat: Abano Healthcare

By Jenny Ruth

Friday 14th January 2011

Abano Healthcare is a company in transition, having sold its New Zealand audiology business and in the process of ramping up its New Zealand and Australian dental networks through acquisitions, says John Cairns, an analyst at Forsyth Barr.

"Bay International is in its formative stages and, bearing in mind the credentials of the joint-venture partner (Bay Audiology founder Peter Hutson), offers considerable growth prospects in developing audiology clinic networks in Australia and Asia," Cairns says.

"Unlike the dental growth strategy, which involves the purchase of existing profitable practices, the audiology growth strategy is focused largely around greenfields clinic openings involving limited upfront capex," he says.

These clinics invariably produce small operating losses over the first year or so until they have built a local market presence, Cairns says. Bay International now has 59 permanent stores and visiting clinic in Australia and 26 in Asia.

"We understand first-half revenue was around $18 million and produced a bottom-line loss of $2.8 million. The earnings potential of Bay International will only become apparent in three to five years, by which time the store network will be of sufficient scale to absorb start-up costs."

Cairns says his $6.57 a share valuation does not capture any upside from Bay International.

Recommendation: Buy.

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