Shares of G8 Education Ltd (ASX: GEM) have received a nice boost this week after the Federal Government unveiled support measures for Australia's early childhood educators.
The Federal Government is set to announce $3.5 billion in extra funding to the childcare sector when it presents the latest Federal Budget tonight. It will do this in an effort to make childcare more affordable and accessible, whilst also increasing the workforce participation rate by encouraging parents to get back to employed work sooner.
The new funding regime also recognises the need for childcare fees to grow, adding an estimated 17.5% to existing fee levels over the next two years. As such, the regime will encourage more parents to send their children to childcare whilst also allowing for higher costs per child per day.
According to an update provided by Folkestone Education Trust (ASX: FET), the new system will also see an increase in funding which will particularly benefit low income households' earning up to $65,000. Funding support of 85% would be provided for these families while that figure will reduce to 50% for families with incomes of roughly $170,000 or more.
Although the proposed changes would not take place immediately, it's certainly a good sign for companies operating within the sector. G8 Education, for instance, has rallied 7.4% so far this week – giving it a total gain of 12.5% since the beginning of the month – while Affinity Education Group Ltd (ASX: AFJ) and Folkestone Education Trust have both risen 4.2% and 3.8% since the beginning of the week, respectively.
Of the three companies, G8 Education remains my favourite bet for the long term. The company has generated enormous returns for shareholders in recent years thanks to its "roll-up" strategy, where it is acquiring smaller businesses to expand its dominance in the local market. As long as it remains disciplined in its acquisition approach, it should continue to be a true winner for investors.
Although the shares have risen strongly so far in May, they remain well below their 52-week high levels at around $5.60 per unit.
