TOUGH WEEK PUTS HEAT ON G8 TO HOLD TOP-COMPANY SPOT

Written on the 2 April 2015 by Nick Nichols

TOUGH WEEK PUTS HEAT ON G8 TO HOLD TOP-COMPANY SPOT

G8 Education (ASX:GEM) is battling to hold on to its title as the Gold Coast's largest listed company after another dismal week on the market saw its shares slide to a 15-month low.

G8 came perilously close to losing the top-company mantle to franchising giant Retail Food Group (ASX:RFG) as its market value jump to a high of $1.141 billion during the week.

This was just $11 million shy of G8's low point of $1.152 billion, highlighting cooling sentiment in recent months for childcare stocks.

G8's shares have shed about $650 million in value since hitting a high of $5.35 in September. At the time, the company's shares had been trading at more than 50 per cent above the industry average price-earnings ratio.

The shares have been buoyed in the past by an aggressive acquisition strategy that helped boost its annual net profit by 70 per cent to $52.7 million in 2015.

G8's shares bottomed at $3.21 this week after the company announced a delay to settlement of eight childcare centres, which were part of a deal for 25 centres announced in August last year.

Seventeen of the centres have already settled, but G8 says the delay has been caused by regulatory and licensing issues which are beyond its control.

G8 says settlement of the remaining centres which are expected to contribute $10 million to pre-tax earnings over 12 months - will take place in November.

The settlement delay has prompted Macquarie to cut its FY15 earnings forecasts for G8 Education by 6 per cent, although it still has a price target of $4.80 on the stock and maintains a neutral stand.

Macquarie cites increased competition, uncertainty over the outcomes of the Productivity Commission's report into childcare as reasons for remaining neutral. It also says "narrowing capital management options may provide negative pressure on the stock over the short term".

This week's share slide also coincided with the record date for G8's latest 6c quarterly dividend, which also highlights a surge in yield to 7.4 per cent for G8 following the share slump.

Affinity Education Group (ASX:AFJ), another listed Gold Coast-based childcare centre operator, also slumped to a nine-month low of $1.075 after hitting a record high $1.46 in February.

Meanwhile, Retail Food Group's shares have held above $7 this week despite coming off the boil over the past month down from a record high of $7.85 on March 6.

The company's price chart shows a spike in late 2014, buoyed by a series of big-ticket acquisitions including Gloria Jean's Coffees and Di Bella Coffee Group.

RFG cracked $1 billion in market capitalisation in the week after settling the Di Bella deal in February. RFG's shares have been in a steady uptrend for the past three years.

Although RFG and G8 are frontrunners as the Gold Coast's top companies, the newly listed Mantra Group (ASX: MTR) could be the one to watch as it edges closer to becoming the city's third billion-dollar company.

Mantra's market capitalisation stood at $930 million this week after hitting a market cap peak of $937 million in mid-March. The company's market value has risen from around $440 million when it listed on the ASX in June last year.


Author: Nick Nichols

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