Allan Gray builds shareholding in G8

“CONTRARIAN” fund manager Allan Gray has swooped in and secured a 5 per cent stake in struggling Gold Coast childcare giant G8 Education.

Documents filed with the Australian Stock Exchange show Allan Gray Australia and funds it manages bought 26.775 million shares in G8 between December 10 and March 5 for a total cost of $46.436 million. Its total stake is 5.82 per cent. G8 has seen its share price continue to fall this month despite underlying earnings for 2019 being in line with guidance.

Securities closed on Monday at $1.17 – far below its 52week high of $3.39 – before recovering ground yesterday to finish up 7.2 per cent at $1.25.

Allan Gray managing director Simon Mawhinney said G8 stock was “attractively priced”.

“We think it is attractively priced not withstanding some of the risks to occupancy and most recently concerns on the back of coronavirus and the impact it might have on occupancy levels from here,” he said. “I think the journey to increase occupancy levels is going to take longer than they first thought but it is an essential service that people need.

“It needs to be able to make a profit, not just G8 but other operators as well,” he said.

Mr Mawhinney said the company’s net debt of $347.1 million was a concern.

“A big part of the debt is as a result of the greenfield centres G8 have pre-committed to buy and so the cashflow that the company has generated have not been stellar at all,” he said.

He said once those commitments have been fulfilled investors should see debt begin to fall.