G8 Education Ltd (ASX: GEM) manages a network of early learning and childcare centres across Australia and Asia, incorporating well-known brands such as Jellybeans, Creative Garden and Pelican Childcare.
Listed in 2007, G8 Education has grown steadily while providing an attractive dividend stream for shareholders.
Why I Bought G8 Education Shares
In my opinion, G8 Education is successfully leveraging the large economic tailwinds of today’s society.
Childcare growth is potentially driven by the increasing pressure on family budgets, which has resulted in both parents having to work, often multiple jobs, to cover the increasing costs of household expenses. This has a flow-on effect to G8 Education with parents often using more of their services to look after their kids while they work.
A secondary factor is the government assistance childcare operators receive. This support is expected to remain an important industry feature going forward.
Overall the childcare market is highly fragmented and G8 Education haven’t been shy in acquiring competitors. A benefiting factor is the synergies that the company can take advantage of as it grows. This includes best-of-breed management, who ensure low costs and low vacancy rates, and lesser fixed costs, including marketing and administration.
Also, due to the nature of childcare, a large number of their centres are still run as independent companies.
What Would Make Me Sell My G8 Education Shares?
Due to the highly regulated nature of childcare, there are several costs that G8 Education cannot avoid. These include staff numbers and ensuring the correct ratio of teachers for each child enrolled. A substantial increase to staff awards would ultimately impact the profit of their centers.
Another risk is the company’s dependence on acquisitions to drive continued growth and shareholder value. The management team needs to ensure a disciplined approach towards acquisitions and ensure all purchases are at a reasonable price and do not impact the overall profitability of the company. Given the well-documented collapse of ABC Learning in 2008 all investors should be looking for a sustainable acquisition strategy.
What Now?
With a growing industry and dominant market share, to me, G8 Education is a comfortable ASX share to own. And with dividends paid quarterly, it’s also a compelling company for those hunting for yield in a low-interest-rate environment.
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At the time of writing, Anthony owns shares in G8 Education.
