Despite the market sinking significantly lower today, the G8 Education Ltd (ASX: GEM) share price has surged notably higher.
In afternoon trade the childcare centre operator's shares have risen 4.5% to $3.94.
Why are its shares higher?
This morning the company announced that it has contracts in place to acquire a portfolio of 19 existing early education and childcare centres from a single vendor.
According to the release, the total purchase price for the 19 centres is $27 million and will be funded from existing cash and finance reserves.
These 19 centres currently generate earnings before interest and tax of $7.2 million, meaning the acquisition is priced at less than 4x EBIT.
With the portfolio made up of six centres in Queensland, five in New South Wales, and eight in Victoria, management believes it will be very complementary to the company's existing portfolio.
As the acquisition is predicted to complete in October, in FY 2017 the centres are expected to contribute approximately $1 million in EBIT.
Should you invest?
I can't say I'm surprised to see G8 Education's shares climb higher today. The acquisition of a quality portfolio at a great price is a big win for the company and should put it in a strong position to deliver a solid increase in earnings in FY 2018.
So with its shares changing hands at approximately 16.5x trailing earnings, I see a lot of value in its shares today. Especially as they provide investors with a trailing fully franked 6.1% dividend at present.
Its shares may be more expensive than rival Think Childcare Ltd (ASX: TNK), but I suspect they could prove to be worth the premium.
