G8 Education Ltd shares dip despite record full year profit

Credit: pixabay

Listed child care operator G8 Education Ltd (ASX: GEM) has on Monday morning announced a record profit for the 12 months ending December 31.

Here are the highlights:

  • Revenue increased 44% to $706 million
  • Underlying earnings before interest and tax (EBIT) increased 45% to $145 million
  • Like-for-like EBIT increased 11%
  • Like-for-like EBIT margin increased from 22.8% to 23.8%
  • Underlying net profit after tax increased 44% to $87 million
  • Underlying earnings per share (EPS) increased 29% to 23.9 cents per share
  • Full year dividends totalling 24 cents per share were paid
  • During the year 44 child care centres were acquired by G8 taking the total number of owned centres to 489 with a combined capacity of 35,211 places
  • Also of note was the resignation of the Chief Financial Officer, Mr Christopher Sacre as an employee of G8 but his continuing involvement with the company as a supplier of services and an independent contractor.

What lies ahead?

According to one analyst consensus forecast, G8 was expected to earn 25.2 cents per share in 2015 (statutory EPS was 24.3 cps in 2015) with a 2016 forecast for EPS of 27 cps. (Source: Thomson Consensus Estimates)

With the share price at $3.41 this implies a forward price-to-earnings ratio of 12.6 times which wouldn’t appear to be demanding compared with market averages and particularly when considering G8’s corporate objective includes to generate double-digit EPS growth and to spend between $50 million and $150 million on child care centre acquisitions during 2016.

Despite the seemingly undemanding relative market multiple of G8, investors should also consider for comparison the long term business performance and historic and current peer multiples of other businesses operating with specific roll-up strategies like Greencross Limited (ASX: GXL) and Primary Health Care Limited (ASX: PRY) as part of their due diligence.

BRAND NEW! Our Top Dividend Stock for 2016

Did you know that G8 Education is one of the few companies to pay dividends quarterly? Discover more dividend secrets in the following report...Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.