US Edition Dentsply
$32.84 at 12pm NY time +21c
Questor says BUY
IN the 17th century novel Don Quixote, Miguel de Cervantes wrote: "Every tooth in a man's head is more valuable than a diamond." This is as true today as it was in 1605.
People in emerging markets will continue to increase their relative wealth. When people get richer they eat better food, spend more money on healthcare and will especially start looking after their teeth.
It wasn't such a long time ago that dentistry involved little more than pulling out rotten molars and providing the poor patient with a set of dentures that almost fit. Now, thankfully, tooth-pulling is a last resort and dentistry is a very profitable – and growing business. In short, dental health is not only a relatively defensive area of healthcare, but it is also a long-term growth market.
US dental product group Dentsply was recommended at $27.71 on January 29 – and the shares are now 18pc ahead of their initial recommendation price. The shares are listed on Nasdaq in New York under the symbol XRAY. You should be able to purchase the shares through your broker as normal.
The group is one the world's largest producers of dental goods. Dentsply designs and manufactures products for all aspects of dental hygiene - from cement to braces, implants and impression materials to dental equipment such as drills and scrapers. It is very likely that it's products have been in your mouth.
The global dental market is estimated to be worth about $12bn (£7.3bn) a year – and it is growing rapidly. Morgan Stanley has estimated that the dental industry would grow 200-300 basis points per year faster than world GDP over the long term.
The group recently issued its second-quarter results, which showed an 11pc decrease in quarterly profits, but the numbers came in ahead of consensus expectations. Excluding one-off items, earnings per share came in at 52 cents compared with a consensus view of 48 cents. The company maintained its full-year guidance for earnings of $1.80 – $1.90 per share.
Dentsply continues to innovate and there was a series of new product launches over the quarter. These include a new nickel titanium endodontic file for shaping teeth and a new type of composite cavity-filling base. Innovation is important for Dentsply and this is evidenced by the fact that about 40pc of its revenues are generated from products that have been launched in the last five years. The company's product pipeline is also "as full as it has ever been" according to Bret Wise, its chief executive.
At the end of the second quarter, the company had $252m (£152m) in cash and short-term investments. Total debt was $420m and the group continues with its share buy-backs. In the year to date, the company has repurchased approximately $10m of shares at an average price of $26. This is positive. Now is the right time in the cycle for companies to buy back shares, when prices are depressed. Most share buy-backs tend to occur at the top of the cycle and the value they create for shareholders is very questionable. When share prices are high, Questor prefers money to be returned to shareholders via dividends.
When the shares were first recommended they were trading on a current-year earnings multiple of 13.8 times. This has now moved to 17 times, but it is still below the historical average of 20. The company is operating in a long-term fundamental bull market and the shares remains a buy at this level.
FirstGroup
355p -1½p
Questor says BUY
FIRSTGROUP recently walked away from potential merger discussions National Express, after the Takeover Panel issued a "put-up-or-shut-up" ruling.
Sir Moir Lockhead, FirstGroup's deputy chairman and chief executive of FirstGroup, said: "In making a preliminary approach to the board of National Express, our intention was to enter discussions with a view to seeking a recommended merger that would create a significant British transport group, in a stronger position to compete with state-run companies across Europe."
However, this deal is now off. A merger may have been a good idea, but with National Express's management hostile to the idea, it is wise for FirstGroup to walk away.
Last week, Morgan Stanley upgraded its stance on the shares to "overweight" from "equal-weight", arguing that investors should look beyond this year's weak earnings to strength next year.
The broker said that all operators would benefit from this year's high fuel hedges rolling off next year, but that the benefit for FirstGroup would be greater than most. The broker sees the end of fuel hedging "virtually guaranteeing" a 36pc increase in earnings per share. The broker also believes that concerns over debt have been overcooked.
FirstGroup plans to launch the US Greyhound bus brand in the UK. The company bought Greyhound's parent two years ago. Services from London to Portsmouth and Southampton will start on September 14. Tickets will start at £1.
The shares were recommended on May 14 at 356p and they are just a touch below that level now. However, with the shares trading on a March 2010 earnings multiple of just 8.8 and an impressive yield of 5.8pc, the stance on the shares remains buy.