G8 Education expands

Childcare operator purchases five more centres.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published August 28, 2013 1:28 pm AEST

Childcare centre owner and operator G8 Education (ASX: GEM) announced on Monday the purchase of five more premium childcare and education centres. The centres are located in Queensland, South Australia and Victoria and will add 397 childcare places to the group.

G8 was able to purchase the centres following the strict guidelines it follows for all acquisitions. The company paid four times the anticipated annual earnings before interest and tax (EBIT) for the coming 12 months and each centre is expected to contribute to EBIT immediately upon settlement. Settlement is planned for the end of October subject to all conditions being satisfied.

The company's guidelines for each acquisition ensure the centres are purchased at the right price and are profitable, and sticking to the formula means that G8 can continue to grow quickly and safely.

The purchases take the tally to 27 centres purchased this calendar year, on target to exceed the 33 centres acquired in 2012. The acquisitions are helping to rapidly grow the company's revenue and profits. In last week's earnings update, G8 reported a 51% rise in revenue, and 62% rise in profits compared to the corresponding period in 2012, and gave an upbeat outlook for the rest of the year.

Due to the rise, the company was able to increase its dividend payout by 50% to 12 cents to share, representing a yield of 4.2% fully franked.

Foolish takeaway

G8 is a strongly growing company, pays a healthy dividend, and has a bright future. The share price has risen strongly over the past 12 months but continued expansion of the business through acquisitions should ensure that it pushes higher. Investors should be comforted by the sustainable growth strategy of the group, which should ensure it does not suffer the same fate as collapsed rival ABC Learning Centres.

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Motley Fool contributor Andrew Mudie owns shares in G8 Education.

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