Childcare and education center owner and operator G8 Education (ASX: GEM) on Thursday announced the purchase of 29 childcare centers in New South Wales, Victoria, and Tasmania and is expected to announce a $60.14 million capital raising. The raising at $3.10 is being managed by Petra Capital and Canaccord Genuity and will be used to fund further acquisitions.
Since the beginning of 2013, G8 has acquired 61 new centres and divested in seven underperforming ones. G8 now owns and operates 210 centres in Australia, 18 owned and operated, and 51 franchised centres in Singapore. The latest acquisitions will add 2,338 childcare places, increasing the total by around 20%, and was funded through existing cash reserves.
G8 has had a terrific run. Not only is it strongly growing the business but the company recently reported a 51% rise in revenue and a 62% rise in profits for the first half of 2013, and expects the second half to be even stronger. Since this time last year the company’s shares have risen from $1.28 to $3.34 as interest in the company intensified and quality acquisitions have been made frequently, at sensible prices.
G8 uses a consistent formula when purchasing new centres; it pays four times the anticipated annual earnings before interest and tax (EBIT) for the coming 12 months, and each centre is expected to contribute to EBIT immediately upon settlement.
G8’s centres are operated under a range of brands including Early Learning Services, World of Learning, Community Kids, Kindy Patch, Headstart, Kinder Haven, Penguin Childcare, Pelican Childcare, Casa Bambini and Little Einsteins.
G8 is a strong, growing company, pays a healthy dividend of around 4% fully franked, and has a smart and dedicated management team. The share price has risen strongly over the past 12 months but continued expansion of the business through acquisitions should ensure that it pushes higher still in the next 12 months. A number of funds have started to invest in the company which will limit any downside.
Investors should be comforted by the sustainable growth strategy of the group, which should ensure it does not suffer the same fate as collapsed rival ABC Learning Centres.
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Motley Fool contributor Andrew Mudie owns shares in G8 Education.