G8 Education looks cheap on almost every measure

The key to G8’s past success lies not so much in the business of childcare but in its acquisition strategy. Buying childcare centres cheaply while raising funds from the market at much higher multiples…or using debt. Many have argued that there are limits to this strategy as cheap properties become scarcer and more of them are needed to maintain the same level of growth. Particularly with the failure of other childcare operators with similar growth strategies during the GFC. G8 management has continued to tweak operating efficiencies from the centres it acquires – including improvements to occupancy rates, fees rises and strict cost control. It means that G8’s future success may not be just about growth in centre numbers but more about good, old-fashioned running a business well. While acknowledging the risks, the arguments in favour for GEM – high growth, high yield, undemanding valuation, positive industry fundamentals, strong broker support and an attractive technical picture – are quite compelling. (VIEW LINK)