Something to get your teeth into, No short term fix for gas prices, but long term solutions will ...

Something to get your teeth into
The Australian - Sydney,Australia
... IS that the din of stampeding bulls from the biodiesel sector we hear? ... Criterion believes biodiesel remains an attractive sector, but needs to prove itself. ...

Something to get your teeth intoCRITERIONTim Boreham
June 09, 2006
Capitol Health (CAJ) 20c
1300 Smiles (ONT) $1.80
AS with many professional species, herding dentists under the one banner is like coralling tumbleweeds. While dentists flock to the same end-of-tax-year alpaca schemes and Caribbean conferences, they prefer to drill and fill as individuals.
Despite the oral and fiscal privations inflicted on them, clients are remarkably loyal. Indeed, Criterion frequented his childhood dentist well into adulthood, before realising the (literally) painful truth that the ageing practitioner's hands weren't quite as steady with the drill as 20 years previously.
Given this, we note Capitol Health's listing today with a degree of trepidation normally reserved for dental visitations.
Professional consolidation plays don't have a good reputation and some - such as the Harts' accountants round up - were outright disasters.
But the Perth-based group has a reasonable rationale and may even benefit from the earlier mistakes of others.
Capitol is raising a modest $1.8million to buy a dental practice at Booragoon in Perth, adding to its existing Fremantle surgery.
Capitol plans to buy up to 50 practices nationally within the next one to two years, based on stumping up 30-40 per cent equity, with debt funding the rest.
It sounds like Capitol aspires to be the Jim's Mowing of dentistry, but chief executive Andrew Harrison says the model won't seek to extinguish the individual dentists' mojo.
Under the model, Capitol buys the surgery from the dentist - typically an ageing baby boomer - and contracts their services for another two to five years.
The dentist, who retains his business identity, also commits to mentoring a newcomer so the practice can continue into the next generation.
As most dental victims, er, clients have suspected, margins are healthy. On Capitol's prospectus numbers, the Fremantle practice produced a net profit of $434,000 in 2004-05, on billings of $1.6million.
Harrison says dentistry is conducive to consolidation because it is more material and equipment-intensive than most other branches of medicine.
"Suppliers are dealing with small dentists who have little or no negotiating power," he says. "We think it's reasonable to expect savings of 5 to 10 per cent on the direct cost of inputs."
Harrison estimates there are more than 5000 stand-alone dentists in Australia. Most have experienced more than enough plaque and halitosis and want to get out, but the market for used practices is illiquid.
The newbie dentists don't want to shell out for the (ever increasing) costs of founding a surgery, hence the attraction of the Capitol offering.
The raising represents only 16 per cent of the listed shares on offer and was easily oversubscribed. Many of the takers were Hay Street groupies who followed Harrison from his previous incarnation at underwater welder Neptune Marine (ASX code NMS).
Dental revenues are pretty reliable, but Capitol's success is not exactly guaranteed.
Harrison acknowledges that a private WA operation, Life Care, came a cropper when it tried to expand from physiotherapy to dental consolidation.
There are more promising precedents as well: the listed Vision Group (VGH) is doing OK by rounding up ophthalmologists and has surfed the laser surgery boom.
Capitol's model is similar to that of the cheesily-monikered 1300 Smiles (ONT), which runs half a dozen practices in northern Queensland.
ONT's charter is also to acquire other practices, but it hasn't been active to date.
ONT reported first-half net earnings of $944,000 on revenue of $3.078 million, a similar earnings profile to Capitol Health's. ONT doesn't give earnings forecasts but looks to be trading on a PE of around 18 times. Founder Daryl Holmes owns 80 per cent of the shares, so it's barely liquid and best AVOIDED for that reason.
Capitol looks a cheaper prospect at the nominal 20c a share listing price, so we rate the stock a SPECULATIVE BUY. But if it lists at a ridiculous premium today, look for something else to get your teeth into it.
Australian Renewable Fuels (ARW) $1.92
IS that the din of stampeding bulls from the biodiesel sector we hear? In recent days some share price sanity has been restored to the red-hot sector, although the broader market's sick as well.
The reason for the pullback is ARW's (well) after-market announcement on Tuesday, 'fessing up to a current year profit downgrade because of commissioning problems at its Adelaide and Perth plants.
The bottom line is that ARW's envisaged $7.1 million profit - as per current year prospectus forecast - will probably be replaced by red ink.
As ARW's release explains, delays in ramping up Adelaide have flowed on to delays at commissioning the less-developed Perth (Picton) plant.
ARW chief Darryl Butcher describes the problems as "relatively niggling": ancillary instrumentation problems and the like. The setback does not relate to ARW's Energea process technology, used at both plants.
"Obviously I am not happy about (the problems) but we will get over it and the business model is still sound," Butcher says.
He says Adelaide has moved into production as planned, but isn't producing as much as it should. ARW aims to become a 45 million litre a year producer from both Adelaide and Perth.
A side-effect of the delay is that ARW isn't yet producing enough to be able to bring a $7.15 million federal grant to account. Grant payments were to have made up most of the now vanished current year profit.
ARW shares have lost 33c, or 15 per cent since the announcement, but are still almost double the listing price. Newcomers to the register such as the Myer family - who bought in at $1.20 in late April are still well ahead.
We suspect ARW shares will be subject to further weakness and rate the stock an AVOID. We last had them as a HOLD at $1.88 on April 20.
We note finance director Max Ger sold his holding of 20,000 shares at $2.25, on May 22. In retrospect, he was ringing the bell for other investors.
Rightly or wrongly, ARW's setback has affected the whole sector. Shares in Australian Biodiesel Group (ABJ) have retreated 10 per cent and Mission Biofuels (MBT) stock is down 6.9 per cent.
Criterion believes biodiesel remains an attractive sector, but needs to prove itself.
Also, there's been too many fuzzy pronouncements about environmental benefits and not enough about biodiesel's price advantage relative to traditional diesel.
borehamt@theaustralian.com.au
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not hold shares in the above securities.

No short term fix for gas prices, but long term solutions will ...
The Prairie Star - Great Falls,MT,USA
... straw. What was once discarded as waste can now be turned into energy. Biodiesel is also becoming more viable. Genetically improved ...

No short term fix for gas prices, but long term solutions will benefit Montana
By U.S. Senator Conrad Burns
Wednesday, June 7, 2006 2:56 PM MDT


As I travel around Montana, I have talked with many folks about the high price of gas. Increased energy costs are impacting every aspect of our day-to-day lives. Crude oil is a worldwide commodity that is driven by emerging economies as well as our own demand for transportation fuels. Our demand has simply outstripped our ability to produce enough gasoline and diesel for today's market.

I tell my colleagues that in Montana we are producing more oil than ever in the history of our state. But the infrastructure we need to move and refine oil has simply not kept pace with demand. We have not built a pipeline in many years and have not built a new refinery in the United States in over 30 years. These factors have created a perfect storm to increase gas prices as the summer driving season approaches.

But American ingenuity will rise to this challenge. These high gas prices will drive us in the direction of alternative fuels and renewable energy, which holds great potential for Montana. We are currently producing ethanol and developing technology for cellulosic ethanol using things like wheat straw and barley straw. What was once discarded as waste can now be turned into energy. Biodiesel is also becoming more viable. Genetically improved oilseeds are being produced and can be turned into a cleaner diesel. Nationally, we have seen increased research from the U.S. Department of Energy providing up to $160 million for the construction of biorefinery demonstration projects, which use biomass feedstocks, including ethanol and biodiesel.

We must also get serious about domestic energy production. We need to open the Arctic National Wildlife Refuge (ANWR) to environmentally sensitive exploration and utilize opportunities for offshore drilling as well as increased production on our public lands. We have the necessary resources available, and we need to be able to access them.

In order to fully benefit from increased domestic exploration, we need to address the serious infrastructure problem with our pipelines and refinery capacity. Even if we produce more oil domestically, we cannot refine it into gasoline because we do not have enough refinery capacity. The process for permitting and citing a refinery has made it undesirable as a business venture - we need to change that. We need to provide incentives for increasing pipeline capacity, upgrading existing refineries and new refinery construction.

There is no silver bullet to bring down gas prices in the short term. We have to look towards the future. Americawill have to increase domestic exploration and refinery capacity. Alternative and renewable fuels are also an important part of our country's energy portfolio. I believe that America's innovation and imagination will allow us to find sustainable and practical solutions to fuel our every day lives.


(Senator Burns is a member of the Senate Energy and Natural Resources Committee and is serving his third term in the Senate.)