G8 Education shares surge on positive outlook

G8 Education shares surge on positive outlook

Shares in childcare services company, G8 Education (ASX: GEM) have surged more than 10 per cent after the company reported earnings for the 2018 calendar year were roughly in line with expectations.

Ahead of the company's annual investor day presentation, G8 Education forecast its earnings before interest and tax (EBIT) will be in the $136 to $139 million range.

CEO Gary Carroll says occupancy levels, which is a key measure of profitability, in the second half of CY18 continue to show above trend seasonal improvement.

"Our like for like occupancy growth has also continued to trend ahead of prior year growth rates, with the gap widening in the third quarter," Carroll says.

Gold Coast-based G8 Education's growth strategy has been based on acquisitions and it operates more than 500 centres in Australia under 23 brands.

The acquisitions are funded by a mix of debt and equity and the basic premise is that buying up other centres means the company can simply incorporate a new business under its umbrella and save on costs such as labour, training and compliance.

This time last year, G8 Education's share price was at $4.50 and it was paying 24 cents a share in dividends.

However, the company issued a profit downgrade in December and the share price plunged. Just three months later, G8 delivered its annual result and revealed it couldn't meet guidance and in August its shares were savaged a further 15 percent on the back of a weak half year report.

G8 is under pressure from an increase in new players in the childcare sector, thanks to government subsidies which are expected to reach $9.5 billion by 2022.

One of its rivals, Think Childcare Ltd (ASX: TNK) has seen its shares tumble by more than 30 percent so far this year.

At around 1pm (AEST) GEM shares were trading at $2.66.

 

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