Think Childcare Ltd (ASX: TNK) has made a promising announcement to the market.
Think Childcare is a childcare operator started its infancy in 2001 when CEO Mathew Edwards built two childcare centres in Melbourne. It has around 80 childcare centres with over 2,000 employees. As a couple of fun facts, the company is responsible for 2.7 million nappy changes and 4.4 million meals served per year. It aims to acquire and integrate childcare centres identified on the basis of acquisition criteria and optimise the performance of the centres that it owns and manages.
Think Childcare’s Latest Acquisitions
Think Childcare has completed the acquisition of four newly constructed, purpose-built Nido childcare services from two incubator partners, which was announced to the market a few months ago.
The idea is that the incubators set up the childcare centres and, when they have reached the right level of progress and occupancy etc, Think Childcare will acquire them.
The initial purchase price for these centres located in Perth is $6.5 million with a maximum earnout of $1.6 million. The EBITDA multiple (click here to learn what EBITDA means) is 4x, meaning Think Childcare is paying 4x operating profit for the centres.
The average daily fees is $121 with 308 licensed places for ages between 9 months to 2 years.
Think Childcare has also opened a new Nido childcare service in Moonee Valley, Melbourne with daily fees of $135 and is expected to reach break even in 9 months after opening.
The company also said that it has been actively working to diversify its Incubator strategy in order to de-risk the business and allow geographical spread of incubation. Think Childcare revealed that seven services are open or opening in 2019, 29 in 2020 and so far 9 in 2021.
Is Think Childcare A Buy?
Its share price has risen 2.4% in response to this news, so investors think it’s good news. The business is valued on a fairly low price/earnings valuation and occupancy continues to improve for the childcare sector.
With a fully franked dividend yield of 3.9% it’s not a bad option, but I don’t think it’s going to deliver rapid growth either, which is why it could be worthwhile considering the growth shares in the free report below instead.
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