Cast your mind back 12 months to the conclusion of the February reporting season for 2014, investors were admiring the impressive growth rates achieved by childcare roll-up G8 Education Ltd (ASX: GEM). That growth had translated into strong share price performance of a 114% rise over the preceding year.
Fast forward to today and things are a little more sanguine. While G8 continues to hit new records on nearly every metric, the share price is showing a flat result for the last year but importantly a 25% decline over the past six months. That is significant underperformance compared with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), which is up over 9% in the last 12 months and is showing a near 5% gain for the last 6 months.
So what's happening?
On the whole, plenty of positive developments are occurring at G8 Education.
- In December 2014, the group announced it was increasing its fully franked dividend from 20 cents per share (cps) per annum to 24 cps per annum. Unusually, the group pays a quarterly dividend which means shareholders receive their cash distributions on a more regular basis.
- G8 reports its full year results on a calendar year basis. The company has a habit – which it is a shame more companies don't follow – of providing the stock market with an official statement for guidance and where it sits in relation to broker consensus numbers. Management issued guidance in December 2014, which it duly met when it reported its full year results in February.
- Acquisitive growth remains frenetic, with G8 adding 203 childcare centres over the course of 2014. The group achieved a 79% lift in revenues to $491 million, a 101% jump in underlying earnings before interest and tax to $101.5 million, and a 58% increase in underlying earnings per share to 18.57 cents.
With the underlying business performance hard to fault it would appear it's a case of the market reassessing its view on value. Thomson Consensus Estimates has G8 set to earn 27.8 cents per share in 2015; with the share price losing another 1.7% today to $4.04, the stock is now trading on a forecast price-to-earnings ratio of 14.6x which looks appealing considering the company's growth potential.
