Childcare giant hits back with share leap

INVESTORS have poured into Gold Coast childcare giant G8 Education following some good industry news and ahead of an investor day this week.

G8’s share price is back to the level it was before it released its half-year results, which warned market conditions for the sector, struggling with an oversupply of centres, were not expected to improve until at least mid-next year.

G8’s share price fell from $2.42 to $2.02 on August 27, after the release of the halfyear results, sinking still lower to $1.88 in a rout that wiped almost $246 million from the company’s market capitalisation.

However, it has gained ground since Thursday to open at $2.45 yesterday morning.

Shares closed yesterday down 2c, or less than 1 per cent, at $2.43, giving G8 a market capitalisation of $1.12 billion.

The boost in the share price last week came after competitor Think Childcare issued an announcement to the ASX that pointed towards improving conditions in the sector.

The Sydney-based company, which told the market it had bought five more centres, said it had seen an improve- ment in occupancy and it expected a further boost from the new Federal Government Childcare Subsidy.

Morningstar senior analyst Gareth James said the statement had a flow-on effect for G8.

“People have looked at that statement and said this is possibly the beginning of the turnaround,” he said.

Mr James said G8’s share price could receive a further lift when it holds an investor day tomorrow.

He said the company was expected to give an earnings update.

“There could be some people (buying shares) thinking to position themselves ahead of an announcement.

“That could potentially push the share price up if the announcement is positive.”

Mr James said Morningstar had held the view for a year that G8’s share price was undervalued.

“We have been saying the market has been taking too much of a short-term view,” he said.

“People remember ABC Learning Centres (a childcare company that collapsed in 2009 owing creditors $1.6 billion).

“A lot of people draw parallels between the two companies but we think that is unfair.”

G8’s strategy had changed from a focus on acquisitions to one on improving the quality of the childcare centres.

“The chair and CEO and CFO, they came over there really only in the past couple of years.

“We think that has been a big positive. We rate management and the board very highly. They have changed the strategy.”

Mr James said the G8 stock remained a focus for shortsellers, meaning it did not take much to create a “short squeeze”.

According to shortman.com.au, 23.91 per cent of the stock was shorted on Monday.

G8, which has a number of brands including Headstart Early Learning Centres and Pelican Childcare, reported its FY18 underlying net profit – which strips out one-off items – for the first six months of the year fell 23.9 per cent to $25.6 million.

Underlying pretax earnings dropped 21.2 per cent to $48.1 million. However, revenue was up 7.6 per cent to $396.4 million, due to fee increases, acquisitions and the opening of new centres. Average like-for-like centre occupancy fell 2.5 per cent.