Childcare services provider G8 Education (ASX:GEM) announced a 73% surge in profit for the half year ending 30 June 2015.
After what has been a horrific year for shareholders, G8 Education demonstrates the profitability of its aggressive growth strategy. Over the past 12 months GEM’s share price has declined more than 30% amid concerns that the company’s acquisition strategy is to similar to that of ABC Learnings which collapsed during the mortgage crisis in 2008.
G8 Education announced an increase in revenue of 63% to $305m compared to the previous corresponding period. Profit after tax increased to $28m. The company commented on results saying ‘Over the course of the half year 2015 the Group continued to execute on its core strategies of disciplined portfolio growth and the provision of exceptional early education services.” After spending $500m on more than 200 acquisitions in 2014, the biggest year of acquisitions ever for the company, GEM acquired an additional 21 new centres during the latest reporting period.
When selecting new acquisition targets GEM has strict guidelines and criteria as to whether the childcare centres fit in the company’s portfolio and aligns with the broader strategy. One of the key criteria is that the new centre makes an immediate positive contribution to profitability. During H1 2015, 88 childcare centres which were acquired in the second half last year as well as the new 21 centres acquired during 2015 contributed to the $28m earnings result.
As part of today’s report GEM also confirmed its intention to acquire all of the shares in Affinity Education Group Ltd via an all share offer of 1 share in GEM for every 4.25 ordinary shares in Affinity.
Shares in G8 Education received a boost this morning climbing more than 3% in the first half an hour of trading. GEM was last traded at $3.24 at 10:30am (AEST).
Author: Simon Herrmann
Aug 10, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.