G8 Education Ltd

GEM Details
·         Concerns relating to oversupply in Childcare centres: G8 Education Ltd (ASX: GEM) stock lost over 8% on May 03, 2017 owing to weakening sentiments based on the oversupply of childcare centres. A research report from Cannacord Genuity has expressed concerns over number of Childcare centers in Australia and their proximity in a particular region as per March quarter update (about 1.6% rise in supply). GEM in fact has responded to ASX Query stating that the group is not aware of any information not announced to the market and concerning the recent trading pattern. On the other hand, GEM continued to deliver decent results and posted a 10.2% revenue rise in FY16 against the prior corresponding period. Underlying EBIT also enhanced 10.5%, boosted by organic growth in the second half while acquisitions performance was on track.

·         Recommendation: GEM stock has been correcting since the last four weeks and lost over 6.8% (as of May 02, 2017) due to concerns of rising competition in the sector. The group has otherwise built a strong brand reputation in the childcare centers in Australia and continues to make investment for center upgrades and refurbishments, as well as increased staff training. We maintain a “Hold” at the current price of $ 3.43

Pact Group Holdings Ltd

PGH Details
·         Weak outlook dragged the stock downwards: Pact Group Holdings Ltd (ASX: PGH) stock lost over 10.6% on May 03, 2017 as the group gave out a weak FY17 outlook. The group reported that the demand was subdued in the month of April while the rigid packaging businesses performance has been very weak. Accordingly, the group forecasts their FY17 earnings to be generally flat (excluding incremental earnings from acquisitions) as compared to the prior year. Moreover, the earnings benefits from their efficiency programs would mainly offset the impact of lower volume and one-off costs of over $3M related with the start-up of major contacts in Jalco.

·         Recommendation: PGH stock already rallied over 17.9% in last six months (as of May 02, 2017) and now trade at slightly higher levels given the weak outlook. We give an “Expensive” recommendation on the stock at the current price of $ 6.60

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