Shares in Gold Coast childcare giant G8 Education climb higher after investor update

INVESTORS and analysts had little reason to throw their toys out of the pram after an upbeat market update by childcare giant G8 Education on the Gold Coast.

INVESTORS and analysts had little reason to throw their toys out of the pram after an upbeat market update by childcare giant G8 Education on the Gold Coast yesterday.

Shares surged after the announcement, which pointed towards improving occupancy levels in the struggling sector, to close 11 per cent higher at $2.69.

That followed previous gains late last week and earlier this week when competitor Think Childcare issued a similarly positive update.

G8 shares have now appreciated nearly 43 per cent in value since their low for the year of $1.88 on October 26.

The childcare sector has been struggling with falling occupancy levels, however, G8 says this is beginning to turn around. Picture: Adam Head

The announcement to the ASX said average monthly occupancy at G8’s 500-plus centres in Australia had continued to trend upwards in the second half, while like-for-like occupancy (comparing the same centres each year) levels were also ahead of previous years.

G8 is targeting pretax earnings of between $136 million and $139 million this year and 81 per cent occupancy at its like-for-like centres by 2022.

G8 EDUCATION REFINANCES LOANS

GET FULL DIGITAL ACCESS FOR 50C A DAY

That would be driven by a reduction in the turnover of centre managers and improvements in quality and innovation, through features such as the rollout of its call centre offering.

Managing director Gary Carroll said the investor day, held at the Crowne Plaza at Surfers Paradise, was attended by a mix of shareholders and analysts.

G8 managing director Gary Carroll. Picture: Richard Whitfield/The Australian

The 35-strong group toured the Kool Kids centre in Nerang as well as attended a presentation on the company’s strategy.

“They liked that the occupancy performance appears to be heading in the right direction,” he said.

“That answered a key concern people had.”

The presentation by G8 noted that occupancy in existing centres acquired last year from other operators was below forecast due to web inquiries, the main source of enrolments, not flowing to G8 after settlement.

“Because the vendor had retained a number of centres under that same brand, we agreed with the vendor that they would maintain the online domain post-settlement and they would funnel the email inquiries that related to our centres through to us,” he said.

“That whole process has not worked as efficiently as we hoped with the result that email inquiries for those centres were well down on benchmark levels in quarter three.”

He said that meant “subdued” occupancy at those centres for that period.

Mr Carroll said the company decided to fix the problem by rebranding and setting up new website domains for brands including Kindy Patch and Community Kids.

“Email inquiries are getting back to more normal levels,” he said.

G8 has deferred the opening of new centres into next year.

The 12 centres due to open in the second half have been reduced to nine, with 19 centres targeted in 2019, up from 16.

The company said the deferrement was designed to capitalise on an expected surge in demand in February and March next year.

It divested one centre, in South Melbourne.

G8, which has a number of brands including Headstart Early Learning Centres and Pelican Childcare, reported its FY18 underlying net profit – which strips out one-off items – for the first six months of the year fell 23.9 per cent to $25.6 million.

Underlying pretax earnings dropped 21.2 per cent to $48.1 million.

However, revenue was up 7.6 per cent to $396.4 million, due to fee increases, acquisitions and the opening of new centres.

Average like-for-like centre occupancy fell 2.5 per cent.