3 ASX stocks set to benefit from Labor’s re-election

Labor's recent victory in the Federal election, securing a second term and achieving a stronger position in the Senate, sets the stage for targeted government investment across key areas. With a renewed focus on health, education, childcare, renewable energy, housing supply, and easing cost-of-living pressures, certain ASX-listed companies are poised to benefit significantly from these policy directions.

For investors seeking to align their portfolios with supportive government trends, here are three companies worth closer attention.

1. Generation Development Group Ltd (ASX: GDG): Positioned to capture superannuation reform

Generation Development Group (GDG) operates primarily through its innovative investment bond products, providing tax-effective investment solutions for Australians seeking tax minimisation alternatives to traditional superannuation. Strong Senate results from Labor and the Greens increase the chances that higher taxes on large superannuation balances will become law.

Labor wants punitive tax rates on superannuation balances above $3m, while the Greens are pushing for a lower threshold. Controversially, the tax on accounts above the $3m threshold is slated to apply to unrealised capital gains, causing major inconvenience to those impacted.

GDG’s flagship product, Generation Life investment bonds, offers compelling tax benefits, including tax-free withdrawals after ten years and flexible contributions without age-based limitations. At present, it is arguably the next best option for tax minimising, after an SMSF.

Generation Development Group has already demonstrated robust growth under CEO Grant Hackett, increasing funds under management (FUM) consistently. As superannuation becomes less attractive to investors, investment bonds become more attractive, meaning Grant is swimming with the tide, not against it.

2. Mayfield Childcare Ltd (ASX: MFD): Riding childcare policy tailwinds

Childcare is a challenging business with high staff and lease costs, price-sensitive customers, and intense competition. A large portion of the costs for childcare centres are fixed – staff costs, leases, and corporate costs make up a large portion of overall expenses, and don’t necessarily fall when occupancy falls. As such, occupancy is a key profit driver, and operating leverage is high.

Mayfield’s occupancy rate was around 70% at the end of FY24, but this excludes 10 underperforming centres that have been marked for divestment. It is not clear what occupancy looks like with those centres included, but I expect it would bring the average down significantly. Once those divestments are completed (I would expect a write-down), the company’s centres should be more profitable on average.

For comparison G8 Education has occupancy of 71% and Nido has 78%. In theory at least, increased government support should drive increased occupancy.

Mayfield’s net profit margin was less than 0.5% in FY24*. G8 has averaged 5.7% since FY20, and 10.3% in the five years prior; Nido achieved just short of 9% last FY, but was unprofitable before that (it only listed in FY23). So there’s clearly plenty of room for improvement here.

Mayfield looks expensive on surface metrics, trading on a trailing PE ratio of almost 100x. But earnings appear to be depressed, so I don’t think this is the best way to look at it. Mayfield trades on a price-to-revenue ratio of around 0.33x, while Nido’s is 1.12x and G8 Education is almost exactly 1x.

Mayfield’s balance sheet presents a material risk. The company completed a $4.6m capital raise just after the end of FY24. But before that, it only had $103k cash on hand. As of 31 December 2024, Mayfield had $8.5m of current lease liabilities (plus another ~$154m of non-current lease liabilities) and $6.3m of current debt while its EBITDA for the year was $17m. That much financial leverage combined with operating leverage can become a serious issue. If divestments don’t go as planned, or if there are further weather-related closures, this could lead to further capital raises, which can be particularly harmful to existing shareholders when the share price is depressed.

Turnarounds can be tricky. But they can produce outsized returns when handled correctly. With a new CEO, some fresh capital, a renewed strategy, and supportive government policy, it appears to be a high-risk, high potential reward for those who can stomach it.

3. Energy One Ltd (ASX: EOL): Leveraging the renewable energy transition

Energy One is a specialist provider of software and services designed for energy markets. Labor’s plan for more wind, solar, and commercial batteries means more demand for Energy One’s energy trading services because smaller distributed power generators are more likely to outsource energy trading than large centralised generators.

Energy One’s competitive advantage lies in its niche expertise and the essential nature of its products for energy market participants navigating complex regulatory and operational landscapes. With energy markets becoming increasingly decentralised and renewable-dependent, companies require more robust, agile software solutions to manage fluctuating energy supplies and pricing efficiently. Energy One meets these critical needs, making it an attractive beneficiary of policy-driven energy transformations.

Strong recurring revenue streams, a solid market position, and consistent historical growth suggest Energy One remains poised to capitalise further on these supportive regulatory conditions.

A Different Kind of Policy Beneficiary

Not every company that stands to benefit from Labor’s agenda fits neatly into a category like childcare, super or clean energy. Some operate in less visible parts of the economy, supporting sectors like energy, defence, and infrastructure.

We recently profiled a small-cap business that may benefit from this broader policy backdrop. It’s not without its challenges, but the fundamentals are improving, and government investment is clearly aligned with its areas of focus.

If you’re looking for another company that could quietly benefit from current policy settings, this one’s worth a closer look. Read about it on A Rich Life.

*The financial year ends on 31 December for MFD, GEM, and NDO

Disclosure: The author of this article does not own shares in any of the companies discussed and will not trade shares for at least 2 days following the publication of this article. The editor of this article, Claude Walker, owns shares in EOL and GDG, and will not trade shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).