Morgan BellABC Learning: Childcare for Profit
November 30th 2006 16:36
Did you, dear reader, ever thought that child-care could be done for a profit, successfully? ABC Learning Centres is the living proof of that. Stay with me.
The news today, 30 November 2006, is that “ABC Learning [Centres] earned $278 million – or 44 per cent – of its revenue from taxpayer subsidies for child care last year, and it is already the biggest child-care chain in the country and the largest publicly listed child-care group in the world.”
“It owns 930 centres in Australia and New Zealand but Mr [Edmund] Groves, co-founder and global chief executive, told shareholders at the company’s annual meeting in Brisbane yesterday that it would increase this to 1400 by 2008. It will add 350 to 400 centres to its Australian operation, while it also plans to rapidly expand in the US.”
“It is able to borrow up to $1.5 billion to fund growth.”
“Community child-care operators expressed concerns that the centres would be a vehicle for profit rather than quality care.”
“A survey of child-care staff by the Australia Institute found corporate centres provided poorer-quality care than community-based centres.”
“Mr Groves defended the quality of his centres yesterday. “Not once have we ever reduced the standard of quality for children, not once have we cut corners.””
“ABC operates in 25 states in the US and has set itself a target of opening 100 centres a year there by 2009, in growth areas such as Los Angeles, Chicago and Phoenix. “The opportunities are enormous,” Mr Groves said.”
“ABC expects operating profits to increase 60 per cent this year to more than $250 million.”
This news was published on the online version of the Sydney Morning Herald under the title “Child-care giant set to expand” and was written by Cosima Marrimer. Click here to open that page: smh.com.au.
ABC Learning Centres (ASX: ABS) could be the newest growth story. As you got to know, after dominating the Australian and New Zealand markets it is now rapidly expanding through the US at a rate of 100 new centres a year.
ABS’s formula is simple: standard, professional child-care and efficient management at all levels. In addition, ABC develops true, valuable learning programs for pre-school children in all of its centres.
ABS’s EPS grew in the last six years by 41 per cent, compounded, to 27.7 cents. This is a great figure for growth. If you assume, and I see it as plausible, that ABS will grow its earnings at that rate in the next six years to 2012, its value would then be an amazing $2.18.
At current P/E of 27 times its price would become a respectable $58.86, from the current $7.45, representing an annual growth rate of 41 per cent compounded.
ABC Learning Centres is able to generate significant cash flow, currently of 30.4 cents per share, to pay for its acquisitions. But, as we have seen, ABS plans to borrow $1.5 billion for that purpose.
ABS Long Term Debt is $234.9 million or 11 per cent of capital which is not much by any accounts and leaves the door open to more debt. ABS’s interest is a mere $22,401.
Current multiples of 27 are probably too high, though. When comparing the capitalisation of ABS of $2,946 million with an equivalent bond value of $1,352 million, it results overpriced.
These figures are based on data available at: http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
Do you think that ABS could be the next success growth story? It may, but if you pay a price too high you may never obtain the return you expect. And then, you risk a sudden price fall.
End
The news today, 30 November 2006, is that “ABC Learning [Centres] earned $278 million – or 44 per cent – of its revenue from taxpayer subsidies for child care last year, and it is already the biggest child-care chain in the country and the largest publicly listed child-care group in the world.”
“It owns 930 centres in Australia and New Zealand but Mr [Edmund] Groves, co-founder and global chief executive, told shareholders at the company’s annual meeting in Brisbane yesterday that it would increase this to 1400 by 2008. It will add 350 to 400 centres to its Australian operation, while it also plans to rapidly expand in the US.”
“It is able to borrow up to $1.5 billion to fund growth.”
“Community child-care operators expressed concerns that the centres would be a vehicle for profit rather than quality care.”
“A survey of child-care staff by the Australia Institute found corporate centres provided poorer-quality care than community-based centres.”
“Mr Groves defended the quality of his centres yesterday. “Not once have we ever reduced the standard of quality for children, not once have we cut corners.””
“ABC operates in 25 states in the US and has set itself a target of opening 100 centres a year there by 2009, in growth areas such as Los Angeles, Chicago and Phoenix. “The opportunities are enormous,” Mr Groves said.”
“ABC expects operating profits to increase 60 per cent this year to more than $250 million.”
This news was published on the online version of the Sydney Morning Herald under the title “Child-care giant set to expand” and was written by Cosima Marrimer. Click here to open that page: smh.com.au.
ABC Learning Centres (ASX: ABS) could be the newest growth story. As you got to know, after dominating the Australian and New Zealand markets it is now rapidly expanding through the US at a rate of 100 new centres a year.
ABS’s formula is simple: standard, professional child-care and efficient management at all levels. In addition, ABC develops true, valuable learning programs for pre-school children in all of its centres.
ABS’s EPS grew in the last six years by 41 per cent, compounded, to 27.7 cents. This is a great figure for growth. If you assume, and I see it as plausible, that ABS will grow its earnings at that rate in the next six years to 2012, its value would then be an amazing $2.18.
At current P/E of 27 times its price would become a respectable $58.86, from the current $7.45, representing an annual growth rate of 41 per cent compounded.
ABC Learning Centres is able to generate significant cash flow, currently of 30.4 cents per share, to pay for its acquisitions. But, as we have seen, ABS plans to borrow $1.5 billion for that purpose.
ABS Long Term Debt is $234.9 million or 11 per cent of capital which is not much by any accounts and leaves the door open to more debt. ABS’s interest is a mere $22,401.
Current multiples of 27 are probably too high, though. When comparing the capitalisation of ABS of $2,946 million with an equivalent bond value of $1,352 million, it results overpriced.
These figures are based on data available at: http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
Do you think that ABS could be the next success growth story? It may, but if you pay a price too high you may never obtain the return you expect. And then, you risk a sudden price fall.
End
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