G8 Education shares lose $458m in one day
CHILDCARE centre operator G8 Education lost almost a quarter of its value in a day - or almost $458 million - after issuing another cut to its earnings forecast.
The Gold Coast-based company blamed an increased supply of childcare centres for hurting occupancy levels, thereby squeezing profits.
G8 now expects underlying earnings before interest and tax to come in at around $160 million, instead of the mid-$170 millions it forecast in August. It had first forecast EBIT would be mid to high-$170 million when raising $100 million from investors in May this year.
G8 Education's shares closed down $1.02, or 23 per cent, at $3.40, on Monday after the warning.
With brands including Early Learning Services and Jellybeans Childcare, G8 said business had been hit by a recent slowing in centre occupancy growth and ongoing supply issues in key regions like the Gold Coast, East Brisbane, Western Sydney and inner Melbourne.
The impact of new centres on supply in the sector in the past 24 months had "resulted in a challenging" environment for occupancy levels in 2017, the company said.
"Continuing sluggish wage growth and employment conditions in regions such as North Queensland" was another problem cited by the company.
Occupancy levels would be about 77 per cent this year, compared to 79.7 per cent from a year earlier.
That had been compounded by more states than it had expected amending staffing ratios, which meant G8 needed to use temporary agency labour and bringing a likely $3 million bill.
"While G8 had been aware that current arrangements were due for review by regulators in a number of states, we expected other states to mirror Queensland by extending the current structures until the end of 2019," the group told the stockmarket on Monday.
G8 managing director Gary Carroll said the group expected challenging market conditions to continue for the next six to nine months.
"While supply has been moderating over the course of 2017, the impact of new supply over the last 18-24 months has resulted in a challenging occupancy environment in FY2017," Mr Carroll said.
Canaccord Genuity head of research Aaron Muller said the occupancy levels were below what the market had been expecting. The main factor had been the level of supply coming into the sector, he said.
But Mr Muller thought the steepness of the share price fall was an over-reaction. The childcare sector faced challenging conditions through to July next year, at which point new government funding should support occupancy growth, he said.
The move came as G8 reshuffled executive ranks. The general manager of business development, Jason Roberts, would leave from mid January for "other interests", while Greg Bowell and Rod Anderson were being made general managers of marketing and property respectively.
The market reacted sharply on Monday, with shares in G8 losing its past six months of steady gains, or more than one dollar in the first hour of trade.