Coltene Holding AG CLHLF XSWS:CLTN is a small-cap manufacturer of dental products. The Swiss company has been growing through mergers and acquisitions as well as organically. Because of its small size, Coltene can probably grow at a faster rate than many of its large-cap competitors.
The stock trades for $99.30, there are 6.65 million shares and the market cap is $660 million. The dollar and franc are at parity, so I’m going to put everything in U.S. dollars. Earnings per share were $4.74 and the price-earnings ratio is 20.9. The dividend is $3 and the dividend yield is 3%. So far, it looks like a pretty decent valuation.
Sales have been flat. Sales were $162.4 million in 2014 and $168 million in 2017. Earnings grew slightly from $15.6 million to $19 million over that period. Profit margins are an incredible 11.36% and return on equity 18%. Very profitable. Free cash flow is usually in the high teens (millions) of dollars. Last year, the company produced $18 million in free cash flow and the free cash flow yield was 2.7%.
The balance sheet is pristine. The asset side has $9.7 million in cash and $37.2 million in receivables. The liability side shows $6.7 million in payables and $12.7 million in debt.
Coltene is diversified across teeth; Restoration is 24.6%, Prosthetics 20.5%, Endodontics 20.7%, Treatment Auxiliaries 13.6%, Rotary Instruments 8.5% and Infection Control 6.6%. Basically, Centene manufactures implants, drills, impressions, disinfectants, files and other devices used in dentistry. North America represents 35% of sales and Europe 3%.
The largest shareholder is Huwa Finanz- und Beteiligungs AG with 26.3%. I found the stock by perusing Tweedy Browne (Trades, Portfolio)’s holdings. The firm owns 6.8%. I’ve found that because Tweedy Browne is such a large money manager, it holds big positions in small companies.
The company is not only growing through organic sales (about 4% a year), but mergers and acquisitions as well. For the first half of 2018, sales jumped from $78 million to $86.6 million. Earnings jumped from $9.6 million to $11.3 million. Growth was spurred by the purchase of SciCan and Micro-Mega. The two are respectively headquartered in Canada and France. Centene is always tucking in new companies.
It looks like the market has figured out there will be growth. The stock has steadily risen since 2012 and is up 20% since the Christmas crash. Because of the stock’s small size, it probably will be easier to grow than some of its competitors like Danaher (DHR) and 3M (MMM). The stock is thinly traded in the U.S., so you’d be better off buying in Switzerland.
Let’s talk about some of Coltene’s products. I find YouTube as a great place to learn about manufacturers. Diatech’s Shapeguard allows dentists to shape crowns. It’s basically like a polisher that goes on a drill bit, only for dentistry. Diatech’s Speedster carbide “burs” allow dentists to drill and cut through crowns. Cements and bonds allow crowns to be adhered. Silicon to make dental impressions. Gelatab for wound treatment. This video shows how veneers are put onto teeth. I’ve never seen this and found it to be interesting. On the internet, I see various cleaning solutions, devices for electrosurgery and curing lights. Some of these items range from a few dollars to a few thousand.
What’s enticing about the stock is the company is so small. At $660 million, the stock is definitely a small cap, almost a microcap. Organic growth has been about 3% a year. Add another 3% for mergers and acquisitions and you’ve got some nice growth. Even though the stock isn’t exactly cheap, it sells off from time to time. I am going to keep my eye on Centene and perhaps wait for a selloff. The aging world will continue to need good dental care.
Disclosure: We do not own shares.
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