G8 Education shares tumble on competition concerns

G8 Education shares have slumped after it indicated it was wary of heightened competition in the sector.

Julie Madgwick, the head of early learning and education at G8 Education. Picture Glenn Hampson

Shares in G8 Education tumbled 16 per cent to a ten-month low on Monday after the childcare centre operator indicated it was wary about heightened competition in the sector over the next six months.

While occupancy building initiatives were gaining momentum, the company (GEM) said it remained cautious about the impact of near-term supply.

It also said that growth in the second-half of the calendar year would not have the benefit of the childcare subsidy stimulus that commenced in July last year, as it delivered a 20 per cent drop in first-half net profit to $19 million.

The lower net profit figure was impacted by the new accounting standards, G8 said.

Still, the company said that organic centre performance continued to track solidly in the first-half of this year as it declared a fully-franked interim dividend of 4.75 cents per share, up 0.25c on last year.

Meanwhile, revenue grew 9 per cent on the prior year to $430.6m and underlying earnings before interest and tax lifted to $51.56m, up from $48.11m in the first half last year.

Shares in G8 ended the session down 44 cents, or 16.6 per cent, at $2.285 each after falling as much as 20 per cent.

“G8 has achieved a solid result for the first half of 2019, in line with expectations, while making pleasing progress on the group’s strategic program to ensure sustainable long-term value,” managing director Gary Carroll said.

“Average like-for-like occupancy for the half was up 1.5 per cent over prior year, driven in part by the Child Care Subsidy, as well as group-specific initiatives such as the Customer Engagement Centre.

“It was positive to see net supply growth in the half being lower than the prior corresponding period, notwithstanding an increase in the second quarter driven by a lower number of closures.”

Mr Carroll said that while the company’s acquisition performance was mixed, it was confident that the acquired centres were on the right growth trajectory.

“The long-term fundamentals of the sector are very attractive, and we are committed to providing a high-quality differentiated service offering to our families,” he said.

G8 Education said its primary focus is now completing its existing pipeline to grow its centre network, as it continues to evaluate opportunities to rationalise underperforming centres, with eight centres closed during the period and a further five identified for closure in the second half.

Over the first half, G8 Education said it had achieved a reduction in staff turnover and was on track to complete the refurbishment of 80 centres in 2019.