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G8 Education shares on watch after delivering first half profit and dividend growth

Childcare shares

The G8 Education Ltd (ASX: GEM) share price will be one to watch this morning following the release of the childcare centre operator’s half year results.

How did G8 Education perform in the first half?

For the six months ended June 30, G8 Education reported a 9% increase in revenue compared to the prior corresponding period to $430.6 million thanks to a 1.5 percentage point increase in its occupancy rate, fee growth, and acquisitions.

On the bottom line, the company posted a 20% decline in net profit after tax to $19 million. This was due to the implementation of new Accounting Standard AASB 16 Leases Standard. On an underlying basis, net profit after tax came in 2.3% higher than the prior corresponding period at $26.2 million.

This allowed the board to declare a fully franked dividend of 4.75 cents, which was 0.25 cents per share higher than last year’s interim dividend.

G8 Education’s managing director, Gary Carroll, was pleased with the first half performance.

He said: “G8 has achieved a solid result for the first half of 2019, in line with expectations, while making pleasing progress on the Group’s strategic program to ensure sustainable long‐term value.”

“The Group achieved underlying EBIT of $51.6m, in line with half year consensus forecasts, and representing a 7% increase on the prior corresponding period, driven by strong performance in our organic centres with underlying EBIT for those centres up 14% on the prior corresponding period,” he added.

What were the drivers of the result?

The release explains that total underlying centre EBIT increased by 12% on the prior corresponding period to $70 million due to a 14% lift in organic centre performance, which was partly offset by weakness from current year greenfield centres.

The company finished the period with an occupancy rate of 71.3%, which was 1.5 percentage points higher than the same period last year. This was driven by government subsidies.

Outlook.

Management advised that organic centre performance continues to track solidly, though it expects things to slow down a touch in the second half as it will not have the benefit of the CCS stimulus that commenced on July 1 2018. It also has concerns over the impact of near‐term supply.

In light of this, calendar year 2019 like‐for‐like occupancy growth is expected to be in the mid 1%pts and underlying EBIT is forecast to be in the range of $140 million to $145 million.

Also on watch today will be the shares of Amaysim Australia Ltd (ASX: AYS) and IOOF Holdings Limited (ASX: IFL) after the release of their respective results.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.

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