G8 Education (ASX: GEM) is doing a capital raising, are its shares dirt cheap?
What is 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.
What is G8 Education doing?
The childcare business announced this morning that it’s going to do a capital raising to ensure it has enough liquidity and flexibility to get through this period of uncertainty.
G8 Education is looking to raise $301 million, comprising $134 million from an institutional placement and a 1 for 2.2 pro-rata accelerated non-renounceable entitlement offer for around $167 million (around $89 million for institutions and around $79 million for regular investors).
The new 377 million shares will represent 82% of existing G8 shares on issue.
The offer price
The officer price is $0.80. A 25.9% discount to the last traded share price of $1.08.
What will the cash do for G8 Education?
It will be used to repay debt, increase cash on hand and pay the transaction costs. It will also reduce leverage from 2.3x to 0.4x EBITDA (click here to learn what EBITDA means) on an ‘adjusted’ 2019 calendar year basis.
Is G8 Education a buy?
There are a number of other things that have been announced that can help G8 Education. The Early Childhood Education and Care Relief Package, the Jobkeeper package and state based packages will all help centres to remain open.
G8’s lenders have agreed amendments to the debt facilities and provide covenant relief for June 2020 and December 2020. It’s working on initiatives to lower costs.
Things are looking up for G8 Education.
During the GFC these cheap capital raisings were some of the best opportunities, so investors may be getting a bargain if they can partake. However, G8 is not a high quality share and it keeps running into trouble, I’d rather invest in these tech shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
