What's happening in the ASX childcare industry?


In view of the federal elections in May, the childcare services sector ASX has headed upward in anticipation of a victory for the ALP and with it a series of new policies for the sector .

We all know the unexpected results of the elections, so how has the dust for the care sector solved now that we are in a couple of months down the track?

G8 Education is one of Australia's leading providers of childcare services and also provides services in Singapore. G8 Education manages and manages a total of 519 centers in both countries. In February, the company announced a difficult period that had seen a decline in profits, but was optimistic about future growth around 2022.

Advancing rapidly until July 8th and a fall in the share price of almost 10% in one day canceled $ 138 million from its market capitalization. The culprit of this decline was lower than the employment rates expected in the 502 Australian childcare centers, conditions that should not improve until the end of the year.

G8 Education is trading at $ 2.68 per share (at the time of writing), with some analysts suggesting that this is the time to buy. There is also a dividend fully distributed on offer at 14.5 cents per share (6.74% dividend yield) to entice investors; however, the dividend yield has been falling since 2016, when it was paying 24 cents per share.

Prospects for the care sector

In 2017 birth rates in Australia have slightly decreased compared to the record number of 311,104 births registered in 2016, which may not be a major concern. However, in conjunction with an annual cut of 30,000 at the permanent migration limit, we could see some challenges to employment rates along the way. The ongoing federal government subsidies to the industry can help stabilize earnings while the company navigates on some short-term obstacles.

A note on services for children and consumer behavior

Business and brand fundamentals are not necessarily priorities when selecting a child care service. These decisions can be very personal and hyper local. Good services gain reputation by word of mouth and you often see requests on local social media groups for local recommendations.

Key questions for parents will focus on the quality of the facilities and staff, staff turnover and costs. That said, these things become less important in areas of high demand and low supply. If you are a mega supplier like G8 Education, you will have to understand the local issues, you will have to meet and exceed the demands of quality regulated frameworks and you will need geographical forecasts when you acquire new areas in high demand areas. These are the keys to getting those high occupancy rates.

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Motley Fool collaborator JWoodward has no position in any of the stocks mentioned. Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all have the same opinions, but we are all convinced that, considering a wide range of insights, we have become better investors. The Motley Fool has a disclosure policy. This article contains only general investment recommendations (with AFSL 400691). Authorized by Scott Phillips.

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