G8 Education share price took a hit during the covid sell off and since then the recovery has been slow yet steady. One of the biggest misconception of the child care sector is that it turns out during periods of economic uncertainties, spending on childcare is discretionary.
Unemployment or lack of employment attractive opportunity is a direct competitor to paid childcare service. A sustained improvement in occupancy will be driven by a combination of improving consumer sentiment and recovery in jobs. The end of free childcare during covid adds further volatility to G8 Education’s earning profile.
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We are keeping an eye on G8 shares for now as we used to own it but it has underperformed the market (Like the ASX 30) after the rollover strategy failed. It raised capital during the post covid sell off so at least the balance sheet is fully repaired.
Busted Roll Up Strategy
Childcare is a fragmented sector and GEM was one of the largest roll up players where it was able to acquire individual childcare centers at private market valuation which was below what the GEM shares were trading on the ASX.
The fragmented nature of the sector where up to 80% of the sector are single site owners means there is significant room to growth the business and room for a consolidation play as long as you are paying below the multiple you are trading.
The difference between private and public market valuation of childcare became an arbitrage play and the management was incentivised to continue an acquisition spree.
As with all acquisition led growth plays it always end when it is taken too far where the goal became making acquisitions rather than making good acquisitions. The current iteration of the company is still recovery from the poor decisions made by the previous management as it divest poorly performing centers and selling its Singapore portfolio.
Government implemented reforms in childcare funding is positive on the early childhood education sector.
G8 Dividend History
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Unlike the Australian bank shares which which are also ex-growth it at least has a respectable dividend yield to compensate while we wait for the recovery in earnings. The historical dividend yield is deceptive as G8 has effectively cut its dividends to reflect the lower earning base.
Related: For investors looking for income there are dividend exchange traded funds which invests in companies which pays consistent and sustainable dividends.
GEM Dividend Dates
GEM dividend dates are October for the final dividend and likely April for interim dividends.
Employee cost is one of the largest expense item for GEM. Potential headwind risk is the increase in labour cost. This is an issue that will come to the forefront as the reform is passed through the parliament.
Related: Income insurance enables individuals to protect their income in the event individuals loses their income as result of injury or disability.