ASX:PSQ
Pacific Smiles Group Ltd
Investment Summary
The fund managers believe that Pacific Smiles Group Ltd (PSQ.ASX) presents a compelling investment opportunity despite recent volatility. In their opinion, the company's share price, which rose 34% in December following a non-binding acquisition proposal at $1.40, reflects positive market sentiment. They noted that their strategic acquisition at an average entry price of less than $1 yielded significant returns, as they capitalized on forced selling by other investors. Although PSQ faced negative operating leverage and a decline in dental visits exacerbated by economic pressures and high cancellation rates post-COVID, the share price decline created an opportunity based on valuation. The fund managers contend that a return to more normal macro conditions could enhance clinic utilization and generate positive operating leverage, making the stock attractive for long-term investors.
Commentary From The Managers
Spheria Asset Management
31 Dec 2023
$1.51
- Spheria Asset Management sold their investment in Pacific Smiles (PSQ.ASX) following a 34% share price increase in December.
- The sell-off occurred after a non-binding acquisition proposal from Genesis Capital Manager at a price of $1.40.
- This sale resulted in a substantial return in a short timeframe, as Spheria had purchased shares opportunistically at an average entry price of under $1.
- PSQ's share price had been negatively impacted due to operating leverage issues and slower normalization of dental visits post-COVID.
- The company also faced high cancellation rates and inflationary pressures, particularly in labor costs.
- The identified weakness in share price created an opportunity for investment based on expected future improvements in a more normal macro environment.
- Spheria's thesis was premised on a potential return to better clinic utilization and positive operating leverage in the medium to long term.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.