Essential services have captive audiences as highlighted by good results from G8 Education and Sydney Airport. Both bonds are available to retail investors from $10,000 per bond
G8 Education reports strong growth, weakening credit profile
G8 continues to report strong acquisition led growth and efficiency benefits driven by its increasing scale. The company has stated it will seek to utilise a higher level of gearing and therefore credit metrics should continue to weaken. However this is from a solid base and controlled by covenants as well as G8’s guidance to a leverage ratio of less than 2.0x net debt to EBITDA.
- Core childcare revenue increased by 43% to $689.4m in FY15 driven by acquisitions
- EBITDA increased 45.7% to $158.5m and NPAT increased 68% to $88.6m
- Efficiency continues to improve primarily due to economies of scale. The EBITDA margin increased to 23.0% FY15 compared to 22.6% FY14. Like for like EBIT, which represents the performance of existing centres, grew 11% to $145.4m
- Operating cashflow was strong at $95.1m compared with $74.7m in FY14
- The group has been increasing its gearing (net debt to total capital) which now stands at 40.5% (39.4% in FY14). G8’s directors believe 45% is an appropriate level of gearing and therefore the continued higher use of debt is likely, which will in turn weaken credit metrics
- Net debt to EBITDA has remained stable at 2.0x in FY15. G8 states it will seek to maintain this measure at or under 2.0x
- Interest coverage measures have weakened from 6.8X (EBITDA/interest) in FY14 to 5.6x FY15 but this is still a comfortable level
G8 has fixed and floating bonds available to retail and wholesale clients in $10k minimum parcels. The floating rate note matures in August 2018 and is offered with an indicative yield to maturity of 6.15% (+411bps) and the fixed rate bond matures in August 2019 and has an indicative yield to maturity of 6.53% (+439bps). Read more
Sydney Airport - Bumper FY15 result, January traffic up 7.5%
Published 18 February 2016
Sydney Airport has released a very strong full year result for 2015, and has started 2016 with a significant increase in monthly passenger volumes. The FY15 result showed strong growth in international passenger numbers, signing a new five year aeronautical agreement with the international carriers, and continued improvement in interest coverage. We remain highly supportive of Sydney Airport as a credit and reiterate exposure to the Sydney Airport bonds in any fixed income investment portfolio.
We believe the continuing macro themes of a weaker Australian dollar and low oil prices are positive for inbound international passenger traffic into Australia. The improvement in economic and living standards across Asia, the strong demand for Australian-based education services from the Asian market as well as the continuing emergence of low cost carrier airlines will drive increased passenger demand into and out of Sydney. In addition, the city of Sydney is going through a major growth and rejuvenation phase, with large scale developments such as Barangaroo and the new Sydney Convention Centre expected to attract further inbound tourism growth.
The Sydney Airport 2020 and 2030 inflation linked bonds are currently offered at indicative yields to maturity of 5.22% and 5.95% respectively, assuming a 2.50% inflation rate.
For more detail on the results please see the full article.