Less is more for G8
GOLD Coast-based childcare provider G8 Education has unveiled a 22.6 per cent boost to its profit during the first six months of the year despite falling occupancy at its centres.
Investors responded positively, sending G8 stock surging 8.84 per cent, or 33¢, to close at $4.06 – its highest level in more than four months.
G8, which has a market capitalisation of $1.7 billion, reaffirmed its full-year earnings forecast of mid-$170 million before interest and tax.
Australia’s largest operator
of childcare centres blamed an increased national supply of long-day care, the Federal Government’s cap on benefits, and poor wages growth for a 3.4 per cent decline in its 12-month rolling occupancy rate.
Same centre revenue fell by $10.3 million with fee increases unable to offset losses from declining occupancy.
However, it said there were signs of an improving occupancy trend since March compared to the same time last year.
Profit during the six months to June 30 rose 23 per cent to $30.5 million while there was a 2.1 per cent gain in revenue to $368.7 million.
G8 said cost savings from its wages bill, contributions from centres acquired last year, and lower finance costs had contributed to the profit result.
“The cost efficiencies established in 2H16 has continued in the half year, enabling good levels of profit growth despite the lower occupancy levels,” managing director Gary Carroll said.
“After a slow start to the year, occupancy has been growing ahead of the same period last year and we are confident the initiatives we have in place will continue this trend for the remainder of the year.”
G8 took steps to strengthen its balance sheet during the half-year. These included raising $100 million via institutional investors and a further $95 million via a placement with Hong Kong-based CFCG Investment Partners International (Australia).
As a result, net debt has fallen from $384.2 million in December to $208.9 million at the end of June.
The company has opened a $200 million club bank facility with CBA, Westpac and Sumitomo Mitsui Banking Corporation.
G8 also announced a cut to annual dividends next year, paying 20¢ instead of 24¢ as in previous years.
Ord Minnett Gold Coast manager Nathan Blair said the result was better than expected.
“FY17 guidance remains unchanged and we note the improvement in occupancy is in-line with their full-year expectations at the time of the recent capital raising,” he said.
Ord Minnett has a target price of $4.30, which is under review.