G8 SHARES BUOYED BY FORECAST PROFIT RECOVERY
Written on the 5 December 2016 by Nick Nichols
CHILDCARE centre operator G8 Education (ASX:GEM) has revealed it is on track to post a pre-tax profit of up to $162 million this calendar year, giving investors reason to push the share price higher in a broadly weaker market.
The forecast result makes up for a shortfall in earnings during the first half, which caused shareholders to sharply sell off the company's stock in August.
The Gold Coast-based childcare centre operator says trading results for the 10 months to the end of October, and estimates for November and December, indicate that full-year earnings before interest and tax (EBIT) will land between $158 million and $162 million.
This compares with the 2015 EBIT of $160.4 million, which puts G8 in a position to potentially post record underlying earnings this year.
G8's shares have languished since mid-August when the company announced a 12 per cent fall in net profit for the June half to $24.87 million.
The shares, which fell as low as $2.62 following the announcement, rose as much as 4 per cent to $3.42 on today's news. This is despite a 1 per cent fall in the ASX 200 today, driven by uncertainty in Europe following Italy's failed referendum on curbing Senate powers.
G8 Education traditionally enjoys stronger trading in the second half than the first half.
"Seasonal performance in terms of organic revenue and operating costs have been in line with our expectations during the second half, while the centres acquired during 2016 have produced earnings in line with our targets," says G8's managing director Chris Scott in a statement to the ASX.
G8 Education posted a net profit of $88.58 million in 2015, up from $52.7 million a year earlier. Revenue rose 44 per cent to $703.5 million.
The past 12 months have been described by the company as a year of consolidation, with the pace of centre acquisitions falling sharply compared to recent years. The company has instead turned its attention to refurbishing existing centres and paying down debt.
G8 Education has also confirmed its quarterly dividend of 6c a share will be paid on January 6, with a record date of December 16. Based on the current annual dividend of 24c a share, G8 is trading on a yield of 7 per cent.
Author: Nick Nichols