Why the Evolve Education (ASX:EVO) share price is jumping 8%

The Evolve Education (ASX:EVO) share price is gaining today after the company announced it was doubling its Australian childcare centres.

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Evolve Education Group Ltd (ASX: EVO) shares are on the rise this morning after the company announced it was doubling the number of childcare centres it operates in Australia.

At the time of writing, the Evolve share price has jumped 8.47% higher to $1.28. This compares to the S&P/ASX 200 Index (ASX: XJO) which is currently trading 0.86% lower. The company also made a declaration on its dividend payments.

Let's take a closer look at what Evolve announced.

What did Evolve announce?

The Evolve Education share price is gaining in early trade after the New Zealand-based company said in a statement to the ASX it intends to acquire ten additional childcare centres in Australia. The total licensed capacity for the new centres is 816 children per day. The contract is conditional on certain criteria being met – like licensing.

The contract stipulates that Evolve must pay the vendor $27.1 million for earnings before interest, tax, depreciation and amortisation (EBITDA) of $6.9 million per annum. Additionally, in the 12 months following the settlement of the contract, if Evolve's EBITDA totals $8.2 million, then the group will need to pay the vendor an extra $5 million.

Commenting on the deal, Evolve managing director Chris Scott said:

This latest acquisition takes the total number of centres operated by EVO to 116 in New Zealand and 20 in Australia, Minimal additional Support Office costs will be incurred in managing these extra 10 centres.

The company declared the purchases will be funded using available cash on hand. As well, the move "will be earnings per share (EPS) positive from settlement".

In further news driving the Evolve share price, the company also revealed today that it will resume paying dividends in the final quarter of FY21. Evolve advised that further details will be provided regarding the dividend later this year.

Evolve share price snapshot

In the midst of the COVID-19 pandemic, the Evolve share price hit a 52-week low of 37.5 cents. Since then, Evolve shares, along with the market as a whole, has made a steady recovery. If an investor had bought shares in the company this time last year, they would be sitting on a healthy return of around 64%.

Yet, in 2017, the Evolve share price was trading as high as $4.01. That means the company's shares would need to surge by more than 200% to reach this level again.

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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