G8 Education Ltd (ASX: GEM) released its half-year report this morning for the period ended 30th June 2019, revealing modest growth but a cautious outlook. Here’s what you need to know.
About G8 Education
G8 Education is the largest ASX listed childcare provider. At the end of 2018, G8 had more than 500 childcare centres in Australia, as well as a few in Singapore. G8 Education has used an acquisition strategy to grow the number of brands it operates including Buggles, The Learning Sanctuary, Kool Kids, Bambinos and Creative Garden.
The Numbers
G8 reported revenue growth of 8.6%, up from $396.4 million to $430.6 million in 1H19. Despite the revenue growth, statutory net profit after tax (NPAT) fell 20% to $19 million as a result of the implementation of the new accounting standard AASB16, which has affected results for several companies that have reported recently.
Underlying EBIT increased by 7.3% to $51.6 million, while underlying earnings per share (EPS) was flat at 5.7 cps.
G8 reported EBITDA to cash flow conversion of 108%, up from 99% in 2018, showing that the company’s commitment to maintaining strong cash flows is paying off.
Dividends
G8 declared a fully-franked interim dividend of 4.75 cps, up from 4.5 cps in 1H18, or an increase of roughly 5.55%. The dividend will be paid 3rd October 2019.
Outlook
G8 advised that, while occupancy is increasing, the company “remains cautious about the impact of near-term supply”. The company expects CY19 like-for-like occupancy growth to be around 1.5%.
Acquisitions made in 2018 and 2019 are taking longer than expected to improve performance, so G8 is forecasting an $8 million reduction in CY19 EBIT contribution from these new centres.
The forecast underlying EBIT range is $140 million to $145 million.
Is It A Buy?
G8 reported modest growth but was very conservative with the CY19 outlook, mentioning the challenging environment. While the growth is attractive, a lot of it comes from acquisitions which can make it difficult to determine how the core business is really performing. Over the last six months, G8 shares seem to have fallen out of favour with investors, down 15%. The low share price may present a buying opportunity, but I think there are better options like the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
