G8 Education Limited

In-Line Performance in 1HCY18: G8 Education Limited (ASX: GEM) is in the business of operating child care centers by providing quality care and educational facilities across Australia and Singapore. They own and operate child care centers. As of now, the company focuses on to maintain a portfolio of outstanding early childhood education brands by focusing on early childhood education strategy. Occupancy levels in 2H are continuously improving and wage performance which is represented by Wages Hours Per Booking has continued the trend.  However, Occupancy in the 2017 brownfield cohort is below forecast due to web enquiries which are the main source of enrolments which is not effectively channelled to G8 by the brand owners. The rebranding of the project was launched in October and enquiries are now back at appropriate levels. Due to Child Care Subsidy (CCS), integration workload has increased and rollout of the new Xplor ‘Core’ platform impacted the timing of the rectification process. Now the issue has been rectified as a part of new integration procedures, rebrands projects will be done swiftly after closing any acquisition. Additionally, FY22 ROCE target driven by an average like-for-like group occupancy lifting to 81% and current Greenfield's pipeline achieving the target of ROI 25%. FY22 Occupancy target is 81% and it’s driven by the reduction in Centre manager turnover and operationally driven improvements from quality and innovation initiatives.

Moreover, the management has been reinforcing balance sheet strength and is capable to meet the capital requirement of the ongoing growth phase. On refinancing front, the company has secured $400 million syndicated bank debt facility on more favorable terms to refinance $270 million SGD bonds and $200 million club facility which is drawn to $80 million at June 2018. Subordinated debt facility of $100 million is in place with financial close to occurring in coming weeks and achieved interest rate saving of around 2% pts on a like for like basis. As at 30 June 2018, Net debt/EBITDA multiple stood at 2x. Additionally, CY18, the company is expected to deliver EBIT in the range of $136 Mn to $139 Mn on the back of business strategies and synergistic acquisitions.


Debt Facilities (Source: Company Reports)

Meanwhile, the share price has risen 37.80% in the past three months as on December 06, 2018 and trading at reasonable PE multiple of 17.310x, showing undervalued position at the current juncture. By looking at its improving financials and decent outlook, we maintain our “Hold” recommendation on the stock at the current market price of $2.870.
 

Asaleo Care Limited

Restructuring the consumer brands: Asaleo Care Limited (ASX: AHY) manufactures and markets consumer brands. They have a desirable portfolio of market-leading brands. Some of the brands are Sorbent, TORK, Libra, TENA. Asaleo care employs 1,000 people. Recently, the company has made a deal with Solaris Paper Pty Ltd wherein they will sell their Australia Consumer Tissue business to them. The company will get $180 million in this deal, which will result in a book profit on the sale of between $15 million and $20 million for the company. The company is expecting to improve EBITDA margin, and it will be accretive to group FY19 EBITDA forecast. The procedure of sale will strengthen the group’s balance sheet, and it will reduce net debt which will improve the company’s leverage ratio. The management is expecting to get a leverage Ratio in the range of 1.5x to 2.5x. It is expected that transaction will be completed in Q1 2019. 
Through B2B channel, the company will generate more than 50 % future revenue. 30% of the company’s capital spending will be saved and it will lead to cash generation. Moreover, the company has also made an agreement for a 5-year extension to its Trade Mark and Technology Licensing Agreement with Essity to 2027. The deal will provide technology, marketing and sales rights for the Tork and Tena brands. From this, they will build a pipeline for world-leading research, development, and innovation for all their brands.  


Business Overview (Source: Company Reports)

On the financial front and for the 1H FY18 period, AHY reported net loss of $101.5m while revenue from ordinary activities were $267.2m, down 9% from last year. Primarily, the performance was impacted by pulp prices and energy costs. The company has generated NPAT of $57.2 million, and in FY16 it was $59.0 million. In FY17 company has achieved free cash flow of $85.8 million. The company generated EBITDA of $124.3 million which is down by 4.9% compared to FY16 EBITDA of $130.7 million. FY17 revenue was $585.8 million which is down by 3.3% as compared to FY16 revenue of $605.9 million. Meanwhile, the share price has risen 14.47% in the past three months as at December 06, 2018 and is trading below the average of 52 week high and low prices (i.e., $1.125). Based on management future goals in relation to strengthen its balance sheet and restructuring the consumer brands, we maintain our “Hold” recommendation on the stock at the current market price $0.945.

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