An extremely positive write-up for GEM and childcare in...

An extremely positive write-up for GEM and childcare in particular in the AFR yesterday. On their math, GEM could start the surge to $4 AUD sooner than thought.

ASX-listed childcare group Mayfield Childcare Limited says the supply and demand economics in the sector are better in Victoria than in other states and predicts more rationalisation across the industry.

Mayfield chief executive Dean Clarke said on Monday that higher numbers of centres with less than 50 places, which his firm is not interested in, are hitting the market, while asking prices for larger centres are generally too high."We just need to find acquisitions but we're disciplined about it,'' he said

.The childcare centre oversupply which hurt the industry in 2017 and 2018 has now largely disappeared.

Mayfield listed on the ASX in late 2016 and now operates 21 centres in Victoria, most of them in Melbourne.It is a relative minnow compared with industry heavyweight G8 Education, which runs more than 500 centres around Australia but is currently struggling. Its share price wallowed at $1.86 on Monday, about half the level it was trading at in late February 2019

Mayfield shares have been on an upward trajectory and were sitting at about $1.08 on Monday, having risen from 97¢ two months ago. It listed with an issue price of $1 a share.

Mr Clarke said the business had delivered 14 per cent revenue growth in calendar 2019 and net profit after tax had increased by 12 per cent to $3.8 million."We're happy with the way things are going,'' Mr Clarke said.

He was content to keep building a Victorian business, with the economics looking better than in other states."I think the dynamics are probably a bit better in Victoria than in other markets.''

Single operators who may have run a childcare centre for a decade or more were generally finding the going tougher, with compliance costs rising and no benefit from scale."I suspect they are going to find it more and more challenging in the future,'' Mr Clarke said.

This would trigger a renewed wave of rationalisation across the market. Costs are rising in part because of more onerous bachelor degree-qualified early childhood teacher requirements, which began from January 1 this year under new government regulations.

Mayfield generated a marginal 0.5 per cent increase in occupancy in its centres in calendar 2019 and pricing improved modestly.

Mr Clarke said the oversupply which had hit the childcare industry generally two years ago had now moderated and had tempered the number of new centres entering the market.However, he said that population growth meant demand from families would continue to rise, and high-quality centres in inner suburban markets were in a strong position.

An oversupply of childcare centres was a major drag on the industry across Australia in 2017 and 2018 after overzealous developers built too many centres on a speculative basis.

Investors have been generally wary of G8 Education after it announced in mid-November a second profit downgrade in three months. At the November announcement G8 chief executive Gary Carroll revealed that occupancy rates were growing by about 1 per cent, and not the 1.5 per cent needed to deliver a previously lowered forecast made in August. G8 operates a range of different brands around Australia including Headstart, Jellybeans, Bambino's and Sandcastles.