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Why the G8 Education share price is worth watching today

The G8 Education Ltd (ASX: GEM) share price is one to watch this morning after 2 strategic updates.

What could move the G8 Education share price?

G8 Education released its presentation notes ahead of today’s 2019 Investor Day to shareholders. The trading update had some good and some bad news, which could move the G8 share price in early trade.

In a good sign for G8, its Centre Manager and Early Childhood Teacher turnover levers have improved by 2.5% and 3%, respectively, since January 2019. The company also reported 82% of its centres meeting or exceeding national standards, up from 79% last year.

These numbers are ultimately flowing through to occupancy levels as well – 224 centres increased occupancy by more than 1.5%, with 141 centres up by 5% on last year.

It wasn’t all good news for shareholders though, with G8 citing short-term earnings headwinds in FY20 that could see the G8 share price move in early trade.

Higher supply and the impact of the Child Care Subsidy (CSS) are hitting G8’s near-term occupancy figures. Delayed realisation of efficiencies also resulted in Q3 2020 wage costs being higher than forecast, which could hit the G8 share price.

G8’s EBIT growth is expected to accelerate as we head towards calendar year 2020. Greenfield occupancy increases and earnings before interest and tax (EBIT) growth alongside its “centre turnaround program” are expected to flow through to higher earnings.

What about G8’s portfolio optimisation strategy?

One key point from today’s trading update was G8’s “portfolio optimisation”, which is now underway. G8 has announced it is divesting 25 centres in Western Australia, which Sparrow Early Learning will purchase.

G8’s centres will sell for $6.4 million at an EBIT multiple of 4.1x from FY19.

G8 is targeting a December 2019 sale, subject to the standard conditions needed for the sale. The sale could see the G8 share price move when trade commences on the ASX.

The sale is all part of G8’s portfolio optimisation strategy, which it sees as key to its long-term earnings growth.

Foolish takeaway

The G8 share price will be one to keep an eye on in today’s trade following the early morning update.

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Motley Fool contributor Kenneth Hall 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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