CHILDCARE DUO WORTH $1.7B
Written on the 19 June 2014 by Nick Nichols
THE Gold Coast is fast gaining a reputation as Australia’s corporate childcare capital with Affinity Education Group (ASX: AJF) this week settling on more than half of an $80 million acquisition it mapped out earlier this year.
The deal caps of a burst of acquisition activity over the past year by Affinity and established Gold Coast player G8 Education (ASX: GEM), with both companies taking advantage of a highly fragmented national market that comprises more than 7000 players.
G8 Education, with a market cap of about $1.5 billion, and Affinity Education, at $200 million, have a combined capital worth of about $1.7 billion - a figure that has more than doubled since early last year.
The value of the two companies is edging closer to the market capitalisation achieved at its peak by failed entrepreneur Eddy Groves’ ABC Learning Centres – formerly the world’s largest childcare centre group worth $2.5 billion in 2006.
Affinity this week settled the acquisition of 30 childcare centres as it continues to expand its portfolio.
The company announced the acquisition of 51 centres in April and the latest settlements bring to 33 the number of centres it has added as part of that deal worth a total of $80 million.
Affinity says the purchase of the centres will be funded by cash raised through a $75 million rights offer earlier this year, plus $15 million in Affinity shares.
In a sign that support for the childcare sector continues to grow, Affinity earlier this year secured a $115 million boost to its debt facility to fund further acquisitions.
G8 Education has been equally supported with $150 million raised in May through an unsecured note program.
G8 aims to raise $420 million to pursue its expansion plans which have been driving dividend growth in recent years.
This week, the company confirmed its quarterly dividend at 4.5c a share, up from 3c a year ago.
Affinity CEO Justin Labo did not return calls for further comment on the company’s acquisition strategy, but he previously has said Affinity is deploying its capital in a “disciplined fashion”.
Affinity has a portfolio of 119 childcare centres in Queensland, NSW, Victoria, Northern Territory and Western Australian.
G8 Education has about 350 centres in Australian and Singapore with a further 97 under contract.
Affinity says the Australian childcare centre market remains fragmented, despite the emergence of corporate players in the space.
Nationally, it says 84 per cent of childcare centre operators manage just one centre, and at the end of last year there were 7183 childcare providers registered in Australia.
Affinity is targeting revenue of $37.7 million in the current half year, and a full-year revenue of $81.3 million.
It is aiming for a maiden net profit of $2.9 million in the current half and $11.1 million for calendar 2015.
Brokers are forecasting G8 to deliver a full-year net profit of between $46.6 million and $50.3 million this calendar year.
Author: Nick Nichols