By Jenny Ruth
Wednesday 4th August 2010 |
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Investors in Abano Healthcare Group will require confirmation the company can still grow earnings before the share price improves to its $6.28 a share valuation, says McDouall Stuart.
"This could take time," the broker says.
The sale of Abano's New Zealand-based Bay Audiology business in November last year removed a key earnings growth engine but has considerably strengthened the company's financial structure, it says.
"The company will aim to restore momentum with the dental operation on both sides of the Tasman in the near term and the Australian and Asian audiology assets in the next few years," it says. "Radiology in New Zealand also has growth prospects."
Abano's New Zealand dental practices rose to 50 in the year ended May from 42 a year earlier and its Australian practices rose to 26 from 18 previously. Operating earnings from the dental operations rose 35% to $6.9 million in the year.
While a planned share buyback should help narrow the discount to valuation, this has been deferred until clarification of the potential sale of NHC Group, the company which bought Bay Audiology and which Abano owns a 6.5% interest.
McDouall Stuart is forecasting Abano's net profit will fall from $4.4 million (before one-offs) in the year ending May to $4 million next year before rising to $6.1 million in the year ending May 2012.
Recommendation: Buy.
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