Hi Guys, I've purchased stock at $3.07 over recent days as I believe this company has great fundamentals and now a big war chest. Clearly the recent weakness is due to the placement/SPP. I"m confident those buying around current prices will be well rewarded in coming months. I've included a summary of the latest Canaccord note below:
Support Services – Childcare CUM EPS AND DIVIDEND UPGRADE Investment Perspective Post its recent placement and current SPP, we estimate GEM will have approximately $120m in acquisition firepower. CG forecasts currently assume GEM spends $32m on acquisitions in both CY14 and CY15 - however, if the available capital is deployed in keeping with the recent run-rate ($10m/month average), then EPS and DPS would increase in those years by between 15-20%. We believe there is a strong likelihood of this occurring with recent discussions with management indicating that the quantity and quality of centres available for acquisition remains strong. We re-iterate our BUY rating with 30%+ upside to our TP of $4.08 per share.
Significant capital to deploy implies a healthy pipeline GEM’s recent placement, which raised $80m, and current SPP to raise up to $30m, will result in the company having war chest for acquisitions of ~$120m. The capital raisings, while seemingly aggressive, suggests the pipeline of acquisitions remains healthy and is consistent with recent discussions with management that the quantity and quality of centres available remains strong.
Run rate implies an average of ~$10m per month GEM has stepped up its acquisition activity in the past 14 months, announcing almost $140m of acquisitions since September 2012. This implies an average of ~$10m in acquisition spend per month, which is considerably higher than what we have baked in for CY14 and CY15 ($32m spend per year). We believe there is a strong likelihood that GEM will continue to acquire at a solid clip, which will result in EPS and DPS upgrades over the next 12 months.
War chest could deliver 4 year EPS CAGR of 37% If GEM continues to acquire at the average rate of $10m/month during CY14, then our EPS estimates would lift in CY14 by 15.6% to 19.2c and in CY15 by 19.6% to 23.9c. This would deliver a 4-year EPS CAGR of 37% and place GEM on an attractive CY15 PER of 13.0x and dividend yield of 6.5%.
BUY retained; TP $4.08/share We reiterate our BUY rating and see the recent pull back in the price as a good buying opportunity. We believe GEM will deploy the available capital at a faster rate than the market is expecting, which will lead to EPS upgrades and consequently dividend growth.
GEM Price at posting:
$2.94 Sentiment: Buy Disclosure: Held
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