Shares in early learning centre operator G8 Education Ltd (ASX: GEM) have hit their lowest level in more than a decade after the company announced a significant downgrade to earnings.
A combination of subdued levels of occupancy at its more than 400 early learning centres and the need for the company to invest in those centres as a response to regulatory changes has led the company to downgrade its full-year earnings forecast to a range of $91 million to $98 million.
RBC Capital Markets said this compared with previous consensus estimates of earnings of about $110.9 million.
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Tough times for sector
G8 had already noted, when releasing its first-half results in August, that occupancy for the first half of its financial year ending in August was lower than for the same period the previous year, "with the macroeconomic environment remaining challenging and affordability and cost of living pressures continuing to impact families''.
At the time, occupancy was 67%, 5.9% lower than for the previous corresponding period.
But at that time, the company expected that the usual seasonal growth in the second half would help it reach similar levels of earnings to the previous year.
That second-half occupancy increase has not occurred, however, as the company explained.
Since the first half 2025 results announcement, the operating environment has remained challenging, with families continuing to face cost of living pressures, lower enquiry levels compared to last year and ongoing sector-wide challenges. As a result, the expected seasonal increase in occupancy in October did not occur.
Indeed, when tested on November 2, the company's "spot occupancy" level was 68.3%, 6.6% lower than for the same period in 2024.
G8 said it had also committed to the rollout of CCTV across its network starting in 2026.
Given the subdued levels of occupancy, the ongoing need for the group to invest in response to changes in the regulatory environment and operational settings, as well as participation of the group in the government inquiries, currently either in progress or scheduled to commence, the group is revising its forecasted full year earnings to be in the range of $91m to $98m.
Shares looking cheap
But while the update was negative, the RBC Capital Markets team believe G8 is good buying at current levels.
They said in a note to clients following the downgrade that "the stock has been a significant laggard'', and they have a 12-month price target of $1.70 on the shares.
G8 shares were trading 14.6% lower on Tuesday morning at 68.7 cents, levels not seen in more than a decade.
Should the company's shares recover to the RBC price target, that would constitute a return of 147.5%. G8 was valued at $621.1 million at the close of trade on Monday.
