Smiles shares in freefall with very high volume traded

Smiles shares in freefall with very high volume traded

Shares in cash-strapped dental practice Smiles Inclusive (ASX:SIL) fell by almost a third today before the company announced a temporary trading halt at 2:17pm AEST.

Chairman David Usasz then responded to the ASX's query about the issue, claiming the company was not aware of any information that could explain the massive drop.

He clarified Smiles was continuing to assess capital raising options, however the proposals under consideration would "not have a material effect on the price or value" of shares.

But what may be more revealing about the incident is the sheer size of the volume traded. With 1.4 million SIL shares traded in a single day, this represents almost 20 times the average level over the past five trading days. 

But who would be able to sell such a huge volume? And to do so when shares are just four cents each, compared to the $1 value they held this time last year? 

According to Smiles' share registry from its 2018 Annual Report, there are only nine entities that have one million SIL shares or more, some of which are super funds and trusts owned by joint venture partners.

A source close to Business News Australia speculates much of the volume likely came from a block sell in a short period, and could have been from a dentist partner who had been with Smiles since the early days of its IPO journey. 

After the company came out of its trading halt, the SIL share price rose slightly to $0.05 but was still down 20 per cent for the day. 

Today's plunge followed an unconvincing response on Wednesday to an ASX query about the Gold Coast group's financial situation and whether it should still be listed on the bourse.

Smiles chairman David Usasz claimed company only had $323,344 in cash as at the end of 13 September, which compares to $1.6 million at the end of June.

In the response, the chairman sought to assure the market and shareholders that cash flow fluctuations were to be expected as Smiles undertakes its turnaround program.

"The Company expects improvements in cash flows over the medium to long term, though the likelihood of negative operating cash flows for the time being remains relatively high," he said.

One of the company's most vocal joint venture partners, Dr Arthur Walsh, alleges the financial answers provided by Smiles to the ASX have been "plain wrong".

"We smell something fishy. It is called profit smoothing using fancy management accruals. Instead, better to focus on cold hard cash or the lack of it," he says.

"Buyer beware. Smiles told the ASX that it generated $540k EBITDA at a practice level in July. There is zero possibility of that.

"The numbers published by Smiles are wrong. Smiles actually made a sizeable loss after corporate overheads, not a small EBITDA profit. The cash burn rate tells you the truth."

Another JVP, Dr John Camacho, says Smiles' mention of its $1.191 million Bartercard Trade dollars in addition to its $323,344 left in cash as at 13 September was a "sign of desperation".

"It gets worse. Under cross examination from ASX the Company now admits going forward it will burn through a lot more cash," says Camacho.

"We predict it is creditors and dentists who will get burned next. It is inevitable. That may explain why it appears dentists are now big sellers of Smiles shares.

"The ASX forced Smiles 2 weeks ago to restate its 1H FY19 results from a profit to a loss. Smiles needs to do exactly the same for July and we suspect August and September as well. Otherwise more investors are about to get burned yet again."

Related stories: As cash runs out, ASX asks if Smiles Inclusive should be listed

Second capital raising? Smiles slammed by partners over non-disclosure

Words of wisdom: The dental advisor who foresaw Smiles Inclusive's demise pre-IPO

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