G8 grilled as stock takes real beating
jenny.rogers@news.com.au months. They hit a year-high of $4.19.
G8 said it was not aware of any reason for the heavy trading in its securities.
However, it noted a research report from Cannacord Genuity, which showed analysts were concerned about an oversupply of childcare centres in Australia.
The brokers said there had been “a noticeable jump” in the number of new long day care centres opened in the March quarter.
The note said there were 113 new childcare centres opened in Australia, a 1.6 per cent increase, in March.
It estimated this could lead to more than 350 new childcare centres opening this year. This would equate to a 5 per cent year-on-year increase in supply and possibly lead to an imbalance in supply and demand.
“We suspect this new supply is in response to the government funding changes that were initially tabled in 2015. However, with a delay in those changes taking place, we believe a supply/demand imbalance may emerge in certain areas, which could impact occupancy and pricing,” the note said.
The analysts were particularly worried that almost half of the new childcare centres opened in March were located near G8 Education childcare centres.
“Together with the anecdotal evidence to suggest that occupancy across the industry has been slower to ramp up this year, we suspect some of this new supply may impact GEM’s centres,” the note said.
As a result, the broker downgraded G8 shares from a Buy to a Hold rating and reduced its price target to $3.80.
G8 Education was one of the best performing stocks on the ASX200 in late February after the Varsity Lakes-based childcare provider revealed it may expand into China.
This was despite the group suffering a 9.4 per cent drop to $80.5 million in annual profit, from $88.6 million a year earlier, due largely to higher costs related to its expansion across Australia and Singapore.
However, shareholders then welcomed news that a Hong Kong-based investment company had agreed to buy a $213 million stake in the childcare provider.
G8 also announced a $212.8 million capital raising to fund acquisition of 49 centres in Australia, and pay down a $50 million bond due for repayment in February 2018.