MARKETS SPECTATOR: Banking on baby

Childcare company, G8, is buying up creches in Australia's east.

G8’s Chris Scott is an acquirer not a builder.

The managing director of Australia’s biggest publicly traded childcare company is looking at Sydney, Melbourne, Canberra and Brisbane childcare businesses as potential takeover targets. Today Brisbane-based G8 announced it plans to buy 17 childcare centers for $24 million, a $22.95 million payment on settlement and $1.05 million being paid once earnings before interest and tax targets are met over 12 months.

G8 will have 201 childcare centers, mostly on Australia’s eastern seaboard, once this acquisition is closed. There are about 6000 child care centers in Australia. They cater to as many as 60,000 six-month to five-year-old children who stay on average three days a week, eight hours a day, Scott told Market Spectator.

G8 charges between $60 and $105 a day per child. The rate charged is cheaper outside the state capitals. The company never builds childcare centers, says Scott. “Running centers gives a better return,” he says. Scott declined to disclose G8’s margins.

Occupancy rates at childcare centers are rising in Australia’s east coast cities. A small percentage of parents move when their children are young. Scott says most are reluctant to move house when they find a good child care center in their area.

“We’re in a position for growth,” he says. He expects G8’s revenue and net profit to be up year on year. In the 12 months to December 31, 2012, G8’s net profit was $19.2 million on sales of $179.9 million.

In 2012 G8 had 167 owned childcare centres in Australia. In Singapore the company had eight owned, 10 managed and 51 franchised centres.

At 1344 AEST G8 shares had added 12.5 cents, or 5.3 per cent, to $2.495. The S&P/ASX200 Index had gained 16.797, or 0.4 per cent, to 4,754.50.

The index has gained 2.2 per cent this year. G8 shares have surged 53 per cent during the same period.

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