Key points
- G8 Education (G8) reported that its underlying revenue and EBIT growth has continued strongly with the acquisition of 203 new centres in FY14
- The group continues to recognise synergies and focus on cost reduction leading to underlying EBIT margin increasing for the fourth consecutive year ending at a record high of 24% for 2H14
- As expected, as G8 expands, it is using an increasing proportion of debt to fund acquisitions in order to continue to deliver shareholder growth. While a solid company and an ASX star performer, upside is to the equity with increasing debt limiting upside to credit fundamentals (noting covenants limit G8 and protect bondholders in this regard)
- However interest cover remains strong at 8.9 times and G8’s more aggressive financing footing is manageable
Details
Source: FIIG Securities, Company presentation
Source: FIIG Securities, Company presentation
- Revenue was up 79% to $491m, underlying EBIT increased 101% to $101.5m and underlying NPAT increased 88% to $60.6m for FY14
- Underlying revenue and EBIT growth has continued most halves since FY10 due primarily to acquisitions (203 new centres in FY14 and 13,697 new child places)
- Since FY10 underlying NPAT has recorded a compound annual growth rate of 93%
Source: FIIG Securities, Company presentation
- Costs continue to trend favourably with wages as a percent of revenue down from 58% in FY13 to 56% for FY14
- Rental expense has reduced from 12.1% of revenue in FY13 to 11.6% for FY14
- Underlying EBIT margins increased for the fourth consecutive year to 21% for the full year, or a record high 24% for 2H14
Source: FIIG Securities, Company presentation
- Gearing (net debt divided by total capital) has increased to 36% for YE14 (previously 12% at YE13) however interest coverage remains strong at 8.9 times (an increase from 8.6 times in YE13). This is well with its financial covenants
- The group raised a total of $470m of new capital in FY14 comprising $200m of equity and $270m of debt