Target $3.45

G8 Education (GEM:ASX)

· Market capitalisation: $1.4 billion
· 12-month total return: 32.2%
· FY20 forecast yield: 5.5%, fully franked
· Analysts’ consensus target price: $3.45 (Thomson Reuters), $3.42 (FN Arena)
Childcare operator G8 Education has built a strong position in the industry with its 502 centres located around the country (as well as 17 in Singapore), a position that means it benefits as childcare centre supply concerns start to ease. The extra childcare spending promised by Labor in the recent election campaign was seen by the stock market as a risk for G8, as it may have attracted into the sector lower-quality operators: the industry had only just seen a supply increase, the result of an overbuild by some participants in 2017, get back toward normal – G8 sees more favourable conditions in the market this year.
G8 is now poised to maximise the benefit of its market position, with the company expecting its 2019 occupancy to come in at the upper end of its previously stated guidance range of an increase between 1%–2%, but with occupancy and profit growth skewed to the second half of the year. With G8 having a December financial year, the implication was that the first-half (June) result may not be all that impressive.
However, analysts expect healthy growth in earnings and dividends for GEM in FY20, with Thomson Reuters’ consensus expectation of a 17-cent dividend in FY20 (up from an expected 14 cents in 2019), and FN Arena only slightly lower, at 16.8 cents. If borne out that would have GEM, at $3.10, on a FY20 fully franked yield of 5.5%, grossing-up to 7.8% – with the added allure of expected reasonable share-price growth.