AFR: G8 Education to buy 91 centres
On the blog last week, Russell questioned whether childcare operator G8 Education (GEM:ASX) is worth more than five dollars per share. In Tuesday’s issue of the Australian Financial Review, Jessica Gardner reported on G8’s recent purchase of 91 centres from Sterling Early Education for $228m. After talking with G8 management, Russell was quoted in the article, which you can read here.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
INVEST WITH MONTGOMERY
Michael Sloan
:
In the article Russell is quoted as saying “the transaction allowed G8 Education to stop a new large competitor from entering the market”. Does Russell mean a competitor in terms of G8 competing for the end customers’ dollars (families/government) or does he mean stopping a competitor prepared to outbid them in the purchase of childcare centres (and investor dollars)? The former wouldn’t seem to make sense given the constant bombardment of articles saying childcare places are in extraordinarily high demand i.e. it’s a captured market. If the latter then they most certainly have breached their own oft-trumpeted financial discipline and in reality begun the practice of overbidding for childcare centre businesses. A case of St Augustine hoping and praying for virtue but not yet?
James Longden
:
Hi Montgomery Team
I have two questions in relation to G8’s acquisition of Sterling and a further 91 childcare centres:
1. What is your updated estimate of G8’s reasonable value range factoring in the acquired EBIT and corresponding EPS dilution from the share placements to fund the acquisition? Could you please kindly post a new blog article following on from Russell’s great article dated 20 March?
2. Did/will the Montgomery Fund participate in the share placement at $4.60 per share?
Thank you for the fantastic analysis and insights both on this blog and elsewhere in the media. I am a very happy GEM shareholder since reading about the company on this blog in recent months. Keep the great work!
Best regards
James
Roger Montgomery
:
Hi James,
We aren’t planning on writing anything for the time being. At this juncture it’s worth always remembering that as time passes and more information comes to hand, you and we may change our view. Please also keep in mind that of course we are under no obligation to provide any updates at all. Having said that I suspect we’ll write something up on G8 as we approach the end of the financial year.
brent bevan
:
Hi Roger,
Just an FYI, the link above points to an 85mb pdf. The admin staff may want to rescan at a far lower resolution, for a one pager 2-3mb should be more than enough.
Cheers,
Roger Montgomery
:
Should all be sorted now Brent.
zoran arnautovic
:
GEM
Don’t forget the advice from the Old Man : Dance, but dance near the exit door.
Just the hint of change from Abott’s gov and run for the door.
Cheers