Why G8 Education Share Price Plummeted 7.62%

G8 Education [ASX:GEM] finished up yesterday at a price of $2.91 — 7.62% lower than it opened — after posting full year results below previously estimated guidance levels.

G8 is Australia’s largest listed childcare centre operator trading at a market capital around $1.30 billion. They maintain a portfolio of early childhood education brands and facilities, which expanded in September after the company announced it had contracts to acquire a portfolio of 19 existing early education and childcare centres.

Back at the start of December, the company’s stock price took a large hit as guidance was revised with an earnings before interest and tax of $160 — down from $170 setback in August.
It was a sour day, as the stock plummeted 23.1% before close on December 4.

Investors would have had their fingers crossed at the start of the week for an earnings report back around $170. Yet the company failed to even reach their latest guidance, and posted underlying earnings before interest and tax of $156 million.

What happened to G8 Education share price?

The poor performance was addressed in a statement from Managing Director of G8 Education, Gary Carroll:

As outlined in our December 2017 trading update, market conditions were challenging during the year with significant levels of new supply and continued weak demand growth having an impact on occupancy levels… The final result was slightly short of previous guidance, driven by higher discounts and increased investment in resourcing for our recently acquired centres and our kindergarten rooms.’

With eyes on the future, the group stated that an increase in government funding in the sector is expected to arrive in July. This, Carroll claims, is forecasted to drive increased demand in the sector.

The full year announcement finished on a lighter note, with Carroll affirming the company is in a ‘very good position’ to grow earnings in 2018 and beyond.

The stock price is down 24.5% over the last 12 months and yesterday’s announcement has taken it to 52 week lows.

What’s next for G8 Education?

G8 Education would be looking to convert recent acquisitions into earnings growth in their new financial year, to break out of their current trend.

Whether or not the market conditions will remain stable for it to do so remains to be seen. Yet any increase in government funding coming through would be a welcome gift for G8.

Regards,

Ryan Dinse                                        

Editor, Money Morning  

and

Jack Cameron,               

Junior Analyst, Money Morning

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Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:


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