“Roll ups” – where lawyers, accountants or vets buy up rivals to boost economies of scale – have a mixed reputation at best among investors. Dental operator Smiles Inclusive demonstrates why.

Missed targets resulting from a series of woes, both self-inflicted and not, have pushed its shares to new lows post its IPO earlier this year. It raised $35 million issuing shares at $1 a share in April, which peaked at $1.12 soon after.

A warning mid-year triggered a steady share price slide, and it is now trading around 40c, which values the entire company at less than $25 million.

Not helping sentiment was the failure of the $200 million IPO by private equity owned National Dental Care which has also raised questions over the sector as a prospective investment.

But insider buying, and a willingness to put detailed weekly revenue forecasts into the market, signals confidence by directors in its prospects even though other investors remain on the back foot.

Smiles Inclusive is not the sole option for investors. Smiles 1300 is another option as is the Kiwi-listed Abano, which owns Maven Dental group, one of the largest networks in Australia.

The point of difference with Smiles Inclusive is its ‘owner-driver’ model, with the original owner of a dental practice holding a 40 per cent stake, giving them access to a portion of both earnings and any future valuations uplift from their individual dental practice over the years.

This is similar to the business model of Steadfast and AUB in insurance broking, which has helped to drive their long term success for investors, even with the cycle of insurance premiums.

Smiles Inclusive’s chief executive Mike Timoney is upfront about his company’s mistakes.

“Clearly I’m disappointed we haven’t delivered,” he told Stockhead. “I do take it seriously. I don’t think anything has changed (with the strategy). Our operations are disruptive and the strategy is intact.

“We’ve had a few issues. Some areas we could have done better and others that were outside of our control.

“We’re about three months behind the curve,” he said. “Even though cash on hand has run low, there is no plans to go to the market for extra funds. We have strong cashflow.

“Yes, (cash) is tight, but we’re awake and at the wheel.”

Customers can use Afterpay and ZipMoney, which is also driving a lift in revenues, he said.

The roll-op continues

And acquisitions are continuing, with more buys likely by year-end, with three purchases earlier this month alone.

“We own 100 per cent of the underlying business, and the dentist buys back a 40 per cent right to EBITDA and a 40 per cent exposure to the ongoing valuation of the practice,” Timoney says. “1300 Smiles is a 100 per cent ownership model.”

Part of the difficulties Smiles Inclusive has encountered is shifting the owner of the dental practice onto a corporate ownership model. While taking control of the business relieves the dentist of a lot of operational problems, it can take time for the dentist to adjust.

“You don’t know what you don’t know,” he said of some of the problems.

And plans to ramp up its mobile dentistry arm ran into early operational problems, delaying the roll-out here until the New Year.

“This will provide the biggest near term upside,” Timoney told Stockhead.