Why G8 Education Rocketed up 12.03% Today

The share price of G8 Education Ltd [ASX:GEM] has continued to make strong gains this morning on the back of their trading update and investor day presentation. At the time of writing G8 is up 12.03% to $2.70, a gain of 29 cents on the morning.

G8 Education is a childcare centre operator providing developmental and educational childcare services mainly in Australia. The company conducts a range of childcare service activities, including the acquisition of childcare centres, the management of childcare centres, industry-related project management, services and consultancy.

What caused the jump in price?

After what can be described as a dismal performance this year, the company has been seen a strong performance in share price since the start of November, up 28.11% on the month.

News out of the company this morning indicates a steady performance during the current calendar years. G8’s occupancy for its childcare centres show above seasonal trends on for the second half of the year. Like for like occupancy growth has also continued to trend ahead of prior year growth rates.

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The company also announced its foreign acquisitions in 2016 and 2017 are performing in line with expectations, with nine new centres targeted in the second half of 2018 and 19 centres targeted in 2019.

Company earnings from the prior year acquisitions are now expected to contribute to an incremental $3–$4 million in EBIT for the second half of the calendar year, below the $7 million forecasted in August. However, the company maintains and expected EBIT of $136–$139 million this calendar year.

What’s next for G8 Education?

In their presentation to shareholders this morning, G8 laid out a series of medium-term targets based on their commitment to foreign direct investment and organic growth. The company plans to hit a target of 81% occupancy by 2022, through a series of operational improvements and innovation initiatives.

G8 also stated they are striving towards a return on capital employed of greater than 15% within the same period. This target will be driven by increased occupancy, new revenue streams, margin expansion, and strong foreign direct investment, which is already achieving a return on investment of 25%.

The news today will bring a sigh of relief to shareholders as it signals it may have well and truly passed its low point in an oversupplied childcare market.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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