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Kalkine Daily 08/04/2015 + G8 Education

Apr 07, 2015

In today’s daily we have covered stock research on G8 Education (BUY).








 

The S&P 500 was down by 4.29 points or 0.21% on Tuesday and closed at 2076.33 points. U.S. stocks ended slightly lower on Tuesday, reversing course late in the session asstrength in the dollar offset optimism about deal news. The S&P utilities sector which helped lead gains on Monday, was the biggest drag on the S&P 500, closing down 1.1 percent. The dollar recovered from recent losses, reaching session highs in afternoon trading. That shifted investor focus again to worries about its impact on U.S. earnings.

Shares of FedEx rose 2.7 percent to $171.16 as it seeks to buy Dutch package delivery company TNT Express for $4.8 billion. Two years ago, competition regulators blockedUnited Parcel Service's bid for TNT because, unlike FedEx, that suitor already had a strong European network.  The Dow Jones industrial average fell 5.43 points, or 0.03 percent, to 17,875.42, the S&P 500 lost 4.29 points, or 0.21 percent, to 2,076.33 and theNasdaq Composite dropped 7.08 points, or 0.14 percent, to 4,910.23.



FEDEX Daily Chart (Source - Thomson Reuters)
 

S&P ASX 200 was up by 27.40 points or 0.47% on Tuesday and closed at 5926.0 points.Commonwealth Bank of Australia traded as high as $95.79, or 1.5 per cent ahead, but was skittled in afternoon trade and closed 0.2 per cent lower at $94.21. National Australia Bank, on the other hand, added 1.7 per cent for the session to $39.33. ANZ Banking Group closed 0.6 per cent up at $36.90, while Westpac Banking Corp added 0.5 per cent to $39.66. Appliance maker Breville Group has ended its seven-month search for a new chief executive, appointing former LG and McKinsey executive Jim Clayton to the role. The plunge in iron ore prices has forced Australia's Atlas Iron to consider the sale of assets and the restructuring of its capital base.

A jump in the price of oil on Monday night boosted energy stocks locally, with the sector the day's best performer. Woodside Petroleum finished 0.6 per cent higher to $34.37, Santoswas up 2.1 per cent at $7.10, and Origin edged up 0.3 per cent to $11.33. Miners BHP and Rio rallied despite further weakness in the iron ore price, with BHP adding 0.7 per cent to $30.45 and Rio Tinto gaining 0.6 per cent to $56.15. Fortescue shares were down 1.4 per cent to $1.79. Woolworths shares finished flat at $28.99, Wesfarmers edged up 0.1 per cent to $43.56 and Metcash dipped 0.7 per cent to $1.45. Chinese stocks have hit fresh seven-year highs ahead of the quarterly earnings season, after the official Xinhua news agency said an acceleration in initial public offerings would not stop the market's bull run.




Breville Daily Chart (Source – Thomson Reuters)

 
Top Performers on the ASX 200 were :-

 


 

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G8 Education Video



 

Stock Of The Day - G8 Education (BUY)

G8 Education, our pick for today, announced for the payment of 6 cents per share fully franked dividend for the quarter ending 31 March 2015. GEM also updated that the Dividend Reinvestment Plan will be applicable to this dividend. Further, the Company conveyed that 5% discount will be applicable for shares issued under the plan wherein the discount would be with respect to the daily volume weighted average market price for GEM shares sold on ASX during 10 trading day period starting 5 trading days preceding and inclusive of the record date and ending after the 4 trading days immediately following the record date.



Number of Centres Acquired per Year (Source – Company Reports)

There has been a delay in settlement of 8 of the 25 childcare centres which were announced for acquisition from different vendors in August 2014. This delay has come as a result of regulatory and licensing issues outside the control of GEM and respective vendors. The Company also updated that settlement of 17 centres has been complete and the settlement for the remaining centres is expected by November 2015. Of course, this delay is going to hit the $10 million figure which was expected to be the EBIT associated with the 8 centres in 12 months post settlement. After adjusting for the time delay, FY15 EBIT is expected to be reduced by about $10 million, however, settlement in FY15 will still ensure full year contribution in FY16. It has been noted that GEM needs to have its vendors mend the inconsistency with regards to the discrepancy between Federal and Local Government Licensing for centres in terms of varied regulations on licensed place numbers.
 
The aforementioned delay alongside little submissive acquisition run-rate as of now does seem to affect the performance to some extent. However, GEM still has the potential to endure double-digit earnings growth over medium-term backed by the operating cash flows and the DRP. GEM has indicated about a strong pipeline of acquisitions at 4x EBIT. However, capital raisings may be needed to support the current dividend payout ratio. Nonetheless, the overall scenario is expected to drive share price appreciation once the aforesaid aspects fall in place. Rise in the rate of acquisitions will be helpful with regards to the 75 centre acquisitions expected per annum from Calendar year 2015 to 2017. Even with the slight short-term negative market sentiments, the boned up consensus forecasts inferring 50 centre acquisitions a year can prove to be adequate. The prime catalyst for growth thus appears to be the centre acquisitions which are expected to stay in favor of GEM in the long run. Awaiting response from the government with regards to the productivity commission proposal for better government funding for the industry can also weigh towards a positive side.



Key Financial Ratios (Source – Company Reports)

It is needless to say that the Company has so far operated well within its financial covenants. Its conservative capital management plans have been reflected by gross debt to EBITDA and interest coverage.



Like for Like Revenue and EBIT (Source – Company Reports)

We also note the quite recent change in the interests of substantial holders that gives a good indication of GEM’s future potential and trust bestowed by the shareholders. 


Shareholder Interests as at Feb’ 15 (Source – Company Reports)

Performance with regards to the rise in sales during each of the previous five years with sales increase a total of 1,351% since 2009 has been quite interesting. The Company revealed a net profit of $53 million for 2014 indicating 70% gain on the prior year. These financial results reflect an encouraging future in terms of GEM’s internal efforts for sustaining growth.


G8 Daily Chart (Source - Thomson Reuters)

Accordingly, we reiterate a BUY recommendation for this stock at the current price of $3.22.

 


Level 13  167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147


        
Note - You can also view this daily in the special reports section.

 


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