G8 Education Ltd (ASX: GEM) has reported its full year result to 31 December 2018, what did we learn?
G8 Education is the largest ASX listed childcare provider, it also has a handful of childcare centres in Singapore. At the end of 2018 G8 had more than 500 childcare centres in Australia. G8 Education has used an acquisition strategy to grow the amount of brands it operates including Buggles, The Learning Sanctuary, Kool Kids, Bambinos and Creative Garden.
What G8 Education Reported
The childcare company said that total revenue was up 7.7% to $858.2 million, but EBITDA declined by 10.1% to $149.1 million (click here to learn what EBITDA means). Both employee costs and occupancy expenses increased faster than revenue growth, up 13.7% and 11.3% respectively.
The company said that underlying EBIT was in line with management guidance despite the heavy declines.
Reported net profit for FY18 dropped 10.8% to $71.9 million and underlying profit dropped by 14.5% to $79.4 million. However, underlying earnings per share (EPS) dropped even more showing a 19.5% decline to 17.5 cents. According to CommSec, analysts were expecting profit of $78.15 million.
Average occupancy for the year was down 1.9% to 74% on a like for like basis, but a better performance at the end of the year saw the occupancy end at a higher level than the end of 2017.
Pleasingly for G8 Education, the company said that there are signs that childcare centre supply growth is moderating, with further declines in the fourth quarter of 2018, although conditions remain challenging.
The company also said that earnings from acquisitions in the prior year were below expectations in the second half of 2018, although there are “positive early signs” in FY19 so far.
G8 Education Dividend and Balance Sheet
G8’s proportionate dividend policy of around 75% of net profit led the company to declare a dividend of 8 cents per share, which represents a cut of 20% from a year ago.
The company said it has secured a $400 million syndicated bank debt facility and $100 million subordinated debt facility to invest further.
Is G8 A Buy?
In the year so far the company said it has achieved occupancy growth of around 2% and wages are performing in line with expectations and are ahead of last year.
FY19 will see incremental earnings from prior year acquisitions of around $10 million, but there will be extra greenfield investment costs of $2 million and another $4 million loss of annual license fee revenue from the end of a broker exclusivity agreement.
Although G8 is reporting slightly better conditions, the share price has risen by nearly 80% over the past six months at the pre-open price. I don’t think there’s anything particularly special about G8 Education’s operating model, I’d rather go for ASX shares with clear advantages like the growth shares in the free report below.
2 ASX Growth Shares Growing Much Faster Than G8 Education
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