Gold Coast childcare provider G8 Education’s share price smashed after profit warning

A GOLD Coast childcare centre operator has lost almost a quarter of its value in one day — or almost $458 million — after a major announcement.

G8 childcare operator has lost a massive amount off its share price

CHILDCARE centre operator G8 Education lost almost a quarter of its value in a day — or almost $458 million — after issuing another cut to its earnings forecast

The Gold Coast’s largest listed company has seen its share price tumble by more than a fifth after an earnings warning due to increased competition.

The Varsity Lakes-based childcare operator told the ASX it now expects underlying earnings this year of about $160 million, instead of the mid-$170 million it forecast in August.

The August forecast was also down from the mid to high-$170 million earnings it expected when raising $100 million from investors in May this year.

Following yesterday’s announcement, the market punished G8 — leading to a 23 per cent or $1.02 fall in its share price to $3.40 by close of trade and wiping out nearly $450 million from its market capitalisation.

G8 Education managing director Gary Carroll. Photo: Steve Holland

G8 blamed a range of factors for the forecast including an increased supply of childcare centres in Western Sydney, Gold Coast, East Brisbane and inner Melbourne, as well as a $3 million temporary-worker agency bill due to an increase in government-mandated staffing ratios.

G8 Education's management team Chris Sacre (from left), Jae Fraser and Chris Scott with kids at a childcare centre.

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An end to funding from the Federal Government’s $200 million Long Day Care Professional Development Program (LDCPDP) also impacted earnings by $9 million compared to 2016.

Managing director Gary Carroll told the Gold Coast Bulletin he had reassured major shareholders that the company, which operates the Early Learning Services and Jellybeans Childcare brands, was focused on growing occupancy. G8 has forecast its like-for-like occupancy rate to be about 77 per cent this year compared to 79.7 per cent in 2016.

Mr Carroll said share price would recover over time “as we deliver results”.

He said the supply increase had been driven by new players attracted to the Federal Government’s upcoming childcare package and developers building new centres.

“While supply has moderated over 2017 it is still running ahead of demand.” he said. “That combined with supply being ahead of demand in 2016 means there are a lot more players in the market than two years ago.

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“We expect market conditions to continue to be challenging for the next six-to-nine months.”

G8 is forecasting a 1 per cent improvement to its EBIT margin after adjusting for LDCPDP funding.

“This is a credible result in the current challenging environment.”

Mr Carroll said he did not expect issues relating to the $3 million temp agency bill to drag on into next year. The bill related to the NSW, South Australian, and Victorian governments initiating a change to staffing ratios during breaks.

Mr Carroll said G8 had gone through a similar change in Western Australia, and after a “transition period” wage costs had returned to normal.

He said the company’s strategy remained focused on building a different offering from competitors.

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