G8 Education Limited

GEM Details

Change in Director’s Interest: G8 Education Limited (ASX: GEM) provides developmental and educational child-care services. The company's principal activities include the operation of early education centers owned by the company and its subsidiaries. As per the company’s announcement on 24 May 2021, the director of the company, Julie Ann Cogin has acquired an additional 12,000 ordinary shares for a total value of $11,640. The director now holds a total of 45,000 shares after acquiring an additional 12,000 shares.

Update on Business Performance: The company has recently updated on its business performance. The company has reported 191 regional centres, including 40 improvement program centres are tracking ~1.9% above the 2019 levels. GEM has delivered an enhanced learning environment in 94 centres in 2020. GEM has taken an initiative to train the team on educational practices and implementation of in-center learning environments. 

FY20 Financial Highlights: GEM has registered a decline in its revenue to $776.45mn in FY20 against $916.62mn in FY19. The company has registered a loss in FY20 on the back of COVID-19 impacts. The company has registered an increase in cash and cash equivalents to $316.98mn as on 31 December 2020 against $40.60mn as on 31 December 2019.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company may witness a decline in occupancy and attendance due to prolonged lockdown from COVID-19. The company holds interest bearing liabilities. Thus, any adverse change in interest rates may impact the financials of the company.

Outlook: GEM is focusing on improvement program after a prolonged lockdown resulted in a decline in occupancy rates. The company is likely to reengineer learning environments and centre operating routines across a group of centres. In the first half of FY21, 118 centres are covered for the improvement program to improve occupancy and earnings. The company is positive about the budget announcement for 2021-22. Under the announcement, government has introduced subsidies from 1 July 2022 for families with multiple children and removing subsidies for families above an income threshold.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of GEM gave a return of ~4.66% in the last one month and a return of ~-6.04% in the last three months. The current market capitalisation of GEM stands at ~$838.91mn as of 28 May 2021. The stock is currently trading higher the average 52-weeks’ price level range of ~$0.760 - $1.315. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in revenue and incurred a loss in FY20. For this purpose, we have taken peers iCollege Ltd (ASX: ICT), Mayfield Childcare Ltd (ASX: MFD), Cluey Ltd (ASX: CLU). Considering the company has registered an increase in its cash balance, decreasing non-current liabilities, improvement program to improve occupancy and earnings, associated business risks and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.01, up by ~2.02% as on 28 May 2021.

GEM Daily Technical Chart, Data Source: REFINITIV 

Evolve Education Group Limited

EVO Details

Update on Capital Change: Evolve Education Group Limited (ASX: EVO) provides and manages an early childhood education (ECE) services in New Zealand. The Company's segments include ECE Centres and Home-based ECE. EVO has recently announced on 12 April 2021 regarding the issuance of additional capital. The company has issued ~19.72mn shares at a price of $1.10 on 12 April 2021. The placement of shares has raised gross proceeds of ~$21.7mn.

Business Performance: The company has recently acquired ten centres in Australia on the condition of approval for licensing. The company expects the acquisition to be earnings accretive with a minimal increase in support office costs. The company is focusing on providing high-quality early childhood education and upgrading their centres to enhance its offerings to families across New Zealand and Australia.

Financial Highlights: EVO has registered an increase in its cash balance to NZ$59.13mn as on 31 December 2020 against NZ$39.04mn as on 31 March 2020. The company has registered a turnaround with profits to NZ$7.57mn in 9 months ending 31 December 2020 against a loss of NZ$13.3mn in 12 months ending 31 March 2020. The company has posted an increase in its cash balance to NZ$59.13mn as on 31 December 2020 against NZ$39.04mn as on 31 March 2020.

Revenue Growth (Source: Analysis by Kalkine Group)

Key Risks: The company deals with multiple currencies. Thus, any adverse change in foreign exchange prices may impact the financials of the company. EVO bears interest holding liabilities. Hence, any severe change in interest rates may impact the financials of the company.

Outlook: EVO is optimistic about the roll-out of vaccines to handle Covid-19 situation. The company expects it to be well placed to see business growth in Australia and New Zealand. 

Valuation Methodology: P/E based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of EVO gave a return of ~-11.16% in the last one month and a return of ~-19.43% in the last three months. The current market capitalisation of EVO stands at ~$159.54mn as of 28 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.672 - $1.480. We have valued the stock using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering a decline in total revenue and a higher debt to equity ratio. For this purpose, we have taken peers Mayfield Childcare Ltd (ASX: MFD), Think Childcare Ltd (ASX: TNK), G8 Education Ltd (ASX: GEM) to name a few. Considering earnings accretive acquisition of ten centres in Australia, decent balance sheet with an increase in cash, associated business risks, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.995, down by ~0.501% as on 28 May 2021.

EVO Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.