“curious time” for an equity raising

12:23pm: A Citigroup analyst has downgraded his rating G8 Education to “sell”, after the company launched a $100 million equity raising to buy another 20 childcare centres.
The analyst said in a report it was a “curious time” for an equity raising given the company has $240 million to run in its Singapore debt program and its net debt-to-earnings ratio would have remained under two times even after the latest acquisitions.
“The consolidation model is working, but it relies on the market keeping its faith,” the analyst wrote in a research note to clients. “In our opinion, this is too big a leap and we can’t justify the current valuation.”
Demand for childcare will continue to support the industry but G8’s graduation into the ASX top 100 companies may put more scrutiny on its valuation and the group may struggle to continue buying centres on low multiples, Mr Rossi said.
G8’s $1.7 billion market capitalisation eclipses a number of stocks at the bottom of the top 100 companies index.The stock has gained 59 per cent in the past year, making it the eighth-best performer in the S&P/ASX 200.
In the early days of its aggressive acquisition strategy, the Gold Coast-based company raised capital via share placements run by smaller investment banks Petra Capital and Canaccord, but the latest placement was conducted by UBS.
G8 chair Jenny Hutson told The Australian Financial Review that adding UBS’s network would attract more offshore investors to the company.


Read more: http://www.smh.com.au/business/markets-live/markets-live-back-in-selling-mode-20141023-3iny8.html#ixzz3H0RTHauT