G8 Education Ltd (ASX:GEM) notes the supply environment continues to be challenging in childcare, with like-for-like (LFL) occupancy down around 2.5 to 3% so far in 2018.
While LFL occupancy is decreasing, prior year acquisitions continue to grow occupancy and are forecast to deliver earnings in line with expectations for the full year.
Furthermore, G8 believes the new child care funding package will benefit 95% of existing G8 families, which will positively impact the second half of 2018.
Australia’s largest child care centre network
G8 provides early education and care services to children under 12 years of age with 495 childcare centres in Australia and 21 in Singapore.
The company’s child centre footprint has grown through acquisitions with another 40 in the pipeline over the next two years.
Notably, the industry still remains highly fragmented with the top five players accounting for only 24% of the market.
Funding changes to drive female workforce participation
From July 2018, the Child Care Subsidy will replace the Child Care Benefit and the Child Care Rebate with a single, means-tested payment to better support Australian families.
Increased funding of $3.5 billion is to be committed by the Government over the next four years, with the majority of the funding increase to be available from July 2018.
This funding will increase, with projected government expenditure by 2021-22 of $11.1 billion
Out of pocket costs are expected to fall, particularly for families with incomes below $120,000 per annum.
This is expected to drive the female workforce participation rate which will positively contribute to Australia’s economic growth.
Importantly, this should drive occupancy rates for the overall childcare sector upwards.