G8 Education Ltd

GEM Details

Acquiring high quality childcare centres at an attractive multiple: Shares of G8 Education Ltd (ASX: GEM) moved up 4.6% on September 22, 2017, at the back of the recent announcement on the acquisition of a portfolio of 19 existing early education and childcare centres from a single vendor. The total purchase price for the 19 centres is $27.0 million, representing a 3.75 times multiple of purchased EBIT of $7.2m. G8 will fund the acquisition from existing cash and finance reserves. Moreover, this acquisition of six centres in Queensland, five in New South Wales and eight in Victoria will complement the G8’s existing portfolio. The acquisitions are expected to complete before the end of October 2017 and G8 has contractual arrangements with each centre, conditional upon customary licensing and landlord approvals. The centres are expected to contribute approximately $1m in EBIT for the 2017 financial year.

On the other hand, the recent outcomes of the capital management strategy review include reduction in current and targeted gearing levels, implementation of a new club bank facility and a transition to a proportionate dividend policy.  Further, the improving performance of the 2016 acquisitions coupled with the current acquisitions augur well for the company. We maintain a “Buy” recommendation on the stock at the current price of $ 4.12

3P Learning Ltd

3PL Details

Improving customer retention and ARPUs: For FY17, 3P Learning Ltd (ASX: 3PL) reported a revenue growth of 6%, year on year (yoy), to $52.5 million while posting 20% yoy growth in underlying Core EBITDA to $16 million. Underlying Net Profit After Tax was up 19% to $6.3 million while Statutory Net Loss After Tax was $7.3 million due to non-cash write-downs of $12 million after tax, to address the carrying value of several technology assets and restructuring costs of $1.6 million after tax.


Financial summary; (Source: Company reports)

The company is on track in executing the three priorities (3 strategic priorities aimed to create a solid foundation for 3P Learning to profitably scale its business globally) and already witnessing the benefits as it has delivered revenue and EBITDA growth in all regions. Further, 3PL has delivered improvements in retention, cost of acquisition and Average Revenue per User (ARPU), and has also improved its net debt position. 3PL expects this foundation building to be complete by the end of Q3FY18, so that it can optimise sales in the latter part of FY18 and accelerate growth in FY19.  With improved customer retention and increased ARPU, along with operating cost control, it expects to see continued revenue growth ahead of cost growth. The stock has moved up 14% in the past six months (as on September 21, 2017) and currently trading at relatively higher levels. We give an “Expensive” recommendation on the stock at the current market price of $ 1.09

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