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G8 Education share price jumps higher despite the government ending its free childcare scheme

The G8 Education Ltd (ASX: GEM) share price has been a strong performer this morning and is trading notably higher.

At the time of writing the childcare centre operator’s shares are up over 6% to $1.10. This compares favourably to an impressive 3.1% gain by the S&P/ASX 200 Index (ASX: XJO).

Why is the G8 Education share price outperforming?

The catalyst for this outperformance has been an announcement this morning in response to one by the Federal Government on Monday.

The latter announcement revealed that the government intends to end its free childcare scheme in July and reintroduce the Child Care Subsidy (CSS). It will also bring to an end its JobKeeper payment for workers in the sector next month.

While you might imagine this to be a negative, it won’t actually be for G8 Education. This is because there will be a three-month transition period that aims to support the early learning sector during a period of reduced occupancy levels.

According to G8’s announcement, early learning and care providers, including G8, will receive a transition payment equal to 25% of each centre’s fee levels prior to the impact of the pandemic. This is based on fees received in the fortnight prior to 1 March 2020.

Management revealed that this equates to approximately half of the amount received under the relief package, but will be paid in addition to the normal CCS and co-parent payments. Though, this transition payment is conditional on early learning and care providers maintaining average gross employment levels during this period.

Another positive is that the Federal Government will ease the activity test requirements that determine a family’s access to the CCS. Management expects this to make early learning more accessible and affordable to certain families. This includes those whose employment has been impacted due to the pandemic.

G8 Chief Executive Officer and Managing Director, Gary Carroll, commented: “The transitional arrangements announced today are welcome as they provide operators with increased flexibility to support families as the economy recovers. We look forward to continuing to engage with government and other stakeholders to ensure the right settings are in place to support our families and team members.”

What will be the financial impact?

Management notes that the revised government support packages are structured in a way that means G8 expects to be in no worse a position relative to the prior support measures.

This is even if occupancy levels become more subdued than they currently are.

Occupancy levels update.

The company also revealed that its booked occupancy rate is currently ~65%. However, physical attendance is approximately 52%, as some parents continue to choose to keep their children at home despite having a booking at a centre.

During May, physical attendance improved ~20 percentage points off the April low of ~30%.

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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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