Mayfield Childcare plans to list on the ASX in November via conventional IPO by raising $24million.
Eight years after the liquidation of ABC Learning, the childcare sector continues to experience growth but have investors fully recovered from the disastrous collapse of the former industry giant? The success of industry peers G8 Education (ASX:GEM) and Think Childcare (ASX:TNK) indicates that the sector is still in favour and the coming IPO of Mayfield Childcare will add another listed competitor to the mix.
Upon completion of the offer Mayfield Childcare will own and operate 16 childcare centres in Victoria with 1,360 licensed places and projected revenues of nearly $29 million for 2017. Mayfield is raising $24 million for the purpose of acquiring these childcare centres, which are predominantly located in suburban Melbourne.
Video: Wise-owl's view on the Mayfield IPO sponsored by OnMarket
While we have already witnessed some consolidation in the industry, the childcare sector remains a highly fragmented industry and Mayfield seeks to gain market share through further acquisitions. The 16 new childcare centres have been EBIT positive for the 1 months to June 2016 and management predicts earnings before interest and tax of over $5million for fiscal year 2017.
Will the market associate the Mayfield IPO with the story of ABC Learning? The answer is maybe, hence an adequate capital management strategy will be a value driver as it will soothe investors. In addition, management targets the distribution of dividends with a payout ratio of 65 per cent of pro forma NPAT.
However, Mayfield is focused on growth via acquisitions and there are integration and balance sheet risks associated with the purchase of new childcare centres. As all of its centres are located within a 160 kilometre radius from the Melbourne CBD, the concentration risk is also high.
Conclusively, successful integration of recent acquisitions and adequate capital management will be crucial to create long-term value for shareholders. Increased government funding should support growth in the industry and as the sector remains relatively fragmented, there is an opportunity for Mayfield to increase market share. As management targets the distribution of dividends, the float appears appealing to investors seeking a mix of capital growth and income.
ASX Code: MFD Shares on Offer: 24m Listing Price: $1 Market Capitalisation: $30m Listing Date: November 28
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.
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