G8 Education (ASX: GEM) has provided a trading update this morning whilst also announcing the sale of some centres.

G8 Education is the largest ASX listed childcare provider, it also has a handful of childcare centres in Singapore. At the end of 2018 G8 had more than 500 childcare centres in Australia. G8 Education has used an acquisition strategy to grow the amount of brands it operates including Buggles, The Learning Sanctuary, Kool Kids, Bambinos and Creative Garden.

G8 Education’s Trading Update

The childcare centre business said that near term occupancy headwinds remain.

However, the company said that 224 centres managed to grow occupancy by more than 1.5% compared to the prior corresponding period and 141 centres grew occupancy by more than 5% on the prior corresponding period. But this doesn’t cover all of G8 Education’s

But, 2019 occupancy growth is now expected to grow by around 1% on the prior year and the impact of the ‘child care subsidy was in the prior corresponding period. The total impact of supply was more than expected by G8 Education.

The company said that the occupancy headwinds had flowed through to wage performance and this, coupled with a slower realisation of efficiencies, resulted in the third quarter wage costs being higher than forecast, but management said wages were back on track.

Outlook

G8 Education said that due to the slower than expected occupancy growth, revenue will be $7 million lower than the target, which will have a significant flow-on effect to EBIT (click here to learn what EBIT means) and wages are also $3 million higher than forecast.

Full year EBIT is now expected to be between $131 million to $134 million.

Centre Sales

The company also announced that it’s going to sell 25 centres in Western Australia to Sparrow Early Learning.

The sale price is around $6.4 million, which equates to an EBIT multiple of approximately 4.1 times. The sale proceeds will be used to pay down down at first and then used to fund growth in the future. The completion is targeted for mid December, but isn’t expected to have a material impact on the statutory results.

The sale will cause an overall portfolio occupancy rise of more than 1% and more than 10% in Western Australia. It will also mean “substantial capex savings.”

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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.