Budget plan drives childcare stocks higher

11 May 2015

The Australian, Monday May 11 2015

By Michael Roddan

Investors have rushed to buy shares in early childhood education after the federal government unveiled new support measures for the sector ahead of tomorrow’s budget.

Investment dealer Canaccord Genuity said $3.5 billion in extra government funding and incentives would drive demand, in particular for ASX-listed groups G8 Education, Affinity Education, and Folkestone Education Trust.

Canaccord said the biggest surprise in the proposed package was the higher-than-expected level of support for middle and high-income families.

“The proposed changes will result in increased funding to the sector, provide funding certainty and promote increased workforce participation that should drive an increase in demand for childcare services,” Canaccord researchers Aaron Mullwe and Cameron Bell said in a research note.

Mr Muller and Mr Bell said the policy changes would be positive for G8, Affinity and Folkestone Education, stocks which Canaccord flags with a “buy” rating.

By 11.30am (AEST), shares in G8 Education had shot up 4.5 per cent to $3.95 against a flat market.

Affinity shares were 4.69 per cent higher at $1.115, while Folkestone Education stock was 1.42 per cent stronger at $2.14.

“While the tightened activity test may offset some of the positives, the vast majority of families will receive a larger subsidy,” the researchers said.

The proposal, to be formally released in tomorrow’s budget, will increase funding to the childcare sector by $3.5 billion over the next four years, 12.5 per cent more than the sector currently receives.

“An optimistic view of the proposal could be that 240,000 families now have added incentive to increase the amount of childcare that they use,” Mr Muller and Mr Bell said.

The proposed changes aren’t due to begin until the 2017 financial year, giving the industry significant time to adjust, Canaccord said.

G8 and Affinity were particularly well-positioned to benefit from the changes, given their favourable exposure to low and medium-income areas, the researchers said.

G8 operates only 15 out of its 449 centres in high- income areas, while Affinity has four out of 161, according to Canaccord’s estimates.

 

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