In five years Mike Timoney built his first dental chain, Dental Partners, to $100 million in revenue with 700 employees.

Now, he’s out to do it again — this time through his own ASX-listed vehicle Smiles Inclusive (ASX:SIL).

After raising $35 million earlier in the year selling shares at $1, investors have seen little change so far since the stock listed in April (see shares price graph below).

In new research the IPO underwriter Morgans reckons the shares are worth $1.40 — although closing that gap may depend on investors gaining confidence the group can deliver on its promises.

With three dental chains listed on the ASX, Smiles Inclusive is not only the smallest, but it is also trading on the lowest earnings multiple at less than 10-times earnings.

The others — 1300 Smiles and Pacific Smiles — are trading on an average multiple of 17-times earnings if the NZ-listed Abano Healthcare is included (since it generates a big slice of its earnings from the Australian dental market).

Abano bought the earlier dental chain Timoney built.

The share prices of all three have drifted over the past few months. Pacific Smiles has been hurt by a large holder, the investor group Soul Pattinson, selling down amid analyst caution over near-term margin pressures.

Mike Timoney, CEO and founder of newly floated Smiles Inclusive

Abano Healthcare has been hurt by soft margins in Australia as well, as it seeks a 10 per cent share of the Trans-Tasman dental market. It claims to be the second largest operator in Australia with 99 practices.

All four groups have their chequebooks out trying to buy more dental practices — but private equity groups, too, are on the hunt, in the heavily fragmented industry.

It is estimated that no single dental player has more than a 5 per cent slice of the market.

The Totally Smiles business model centres on the existing dental practice owner retaining a large vested interest via a 60/40 split of profits while it works to drive higher volumes via marketing and diary initiatives and pursuing back office savings.

In essence, Totally Smiles enables dentists to monetise the equity in their practices, while working to boost revenue and take care of much of the back office, which frees up consultation time.

This should help provide investors with some comfort. Although as a “roll-up” buying existing dentist practices and consolidating them into a larger group with greater economies of scale, mistakes can be made —  as has been seen in other industry sectors such as accounting where roll-ups have not succeeded.

Smiles Inclusive has about 50 dental practices at present, centred on Queensland but with a beachhead in all other States which will provide it with growth options as it ramps up its target of doubling the number of dental practices in its network over the next 12 months.

Smiles Inclusive’s share performance since listing in April (ASX:SIL)

Rising consumption of sugary foods and drinks is resulting in worsening dental hygiene among children, Totally Smiles’ Timoney says, with rising demand from the aging population also helping maintain demand for more complex dental procedures as older patients seek to maintain their existing teeth.

 “Our dentists are reporting alarming numbers of children who are being admitted to hospitals with preventable dental problems — largely a result of them eating foods packed with sugar,” Mr Timoney said.

“There is no doubt that food labelling regulations need to be tightened and parents educated in the need for themselves and their children to visit their dentist at least once a year, while also reducing their own rates of drinking and smoking.”