Shares in G8 Education, Nido Education take a hit from lower earnings

Cost-of-living pressures on families have weighed down earnings expectations for two ASX-listed childcare operators today, with share prices plunging for G8 Education (ASX: GEM) and Nido Education (ASX: NDO) in early trading by 13 per cent and 7 per cent respectively.

With spot occupancy already down by almost six percentage points at 67 per cent back in August, this morning G8 Education reported that an expected seasonal increase in occupancy in October failed to materialise.

"Since the H1 2025 results announcement, the operating environment has remained challenging, with families continuing to face cost of living pressures, lower enquiry levels compared to last year and ongoing sector-wide challenges," reports Gold Coast-based G8 Education, Australia's largest ASX-listed early childhood and care provider.

"Accordingly, the trajectory for occupancy for the balance of the year is expected to be softer than prior comparable periods."

Whilst the year-end spot occupancy is expected to be slightly above the half-year level at 68.3 per cent, G8 Education has downgraded its full-year earnings to a range of $91 million to $98 million.

This compares to previous guidance that lease-adjusted EBIT performance would be similar to the $115 million result for 2024.

The update adds salt to the wounds of a G8 Education share price that is now down 44 per cent over the past six months, having been in steady decline since the revelation of distressing allegations against a former employee in Victoria in July.

The share price decline for Sydney-based Nido, both today and over the past six months, has been less severe with its earnings set to be down 18 per cent for the full-year in a range of $16.5 million to $18 million.

"2025 continues to be a challenging year for the early education sector. Factors such as cost of living, working from home, reduced birth rates over the past  four years and changes to school intake are compounding to create strong sector headwinds, although recent data suggests births are increasing," Nido Education states.

Despite these challenges Nido has stood by its plans to acquire 100 services from incubation over five to six years. In the year-to-date it has acquired five centres and exects to launch another five by years' end, compared to seven new service openings in 2024.

"It is beholden on us as a company to ensure we create shareholder value when opportunities present themselves. Accordingly, we have been closely watching the decline in the number of acquirers of existing profitable childcare services, that has in turn resulted in earnings multiples reducing significantly," the company notes.

"We don’t expect that multiples will stay subdued for an extended period. We have seen this cycle a number of times over the past 20 years but have not been in the position to be opportunistic and take advantage of these cycles for the benefit of our shareholders.

"We are actively considering the above scenario and expect to make further announcements over the coming months to capitalise on this opportunity."

Nido is optimistic about births starting to increase in Australia - a trend further supported by the immigration intake of young families - while it also forecasts tailwinds from changes to the activity test that come into effect on 5 January 2026.

Families are currently required to have both partners working, studying or looking for work to access childcare subsidies of up to 95 per cent of approximately $175 per day - a level that is reduced in line with a family's combined income.

What this means right now is that a family where both partners are earning $75,000 annually would be eligible for the subsidy, but a single-income household earning $150,000 would not.

This discrepancy will be resolved starting next year, with the same family being eligible for a 77 per cent subsidy up to the cap.

"As a result, based on a service charging $175 per day, this family would now pay approximately $40 per day for up to three days per week," Nido explains.

"Sector estimates of families impacted range from 100-190,000 families, with currently one million families enrolled in childcare."

G8 Education is also bullish on the abolition of the activity test for three days of care, which it believes will "increase demand in 2026 across the sector".