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On 2 April 2020, the Morrison government has announced free child care to aid parents, children and struggling childcare sector during coronavirus pandemic. The Federal Government will fund the ailing sector by spending A$1.6 billion as parents have pulled out their children from care.
Childcare is a significant aspect in guiding the growth prospects of the Australian economy. The field dedicated to kids ensures education curriculum and necessary skill set for survival in society and sustaining financially. Childcare in Australia supports about 1 million families for them to participate in the workforce.
All parents, including students and the unemployed, would qualify for the government scheme, benefitting about 1 million families. The plan supports 13,000 childcare and early learning services by paying half of the operating costs. Preference will be given to working parents, parents with pre-existing enrolments and will aid vulnerable and disadvantaged section of children in need of early education.
Childcare relies on payments from the Federal Government and parents. The Commonwealth childcare subsidy makes up for 60% of the payment to the centres; rest comes from the parents. Parents cannot afford childcare anymore as many have lost their jobs, and increasing children staying at home due to isolation requirements amid coronavirus outbreak has pushed the sector out of money.
Here’s a look at some childcare stocks and analyse their stance amidst current scenario-
G8 Education Limited (ASX: GEM)
G8 provides community-focused childcare for families to promote their child’s development.
The stock price of the company fell from a high of A$1.825 on 21 February 2020 to A$0.52 on 23 March 2020 amidst the virus spread, before it began the upward trend.
The stock last traded at A$0.840 on 1 April 2020. However, on 2 April, the securities were placed in a trading halt at the request of the Group pending it releasing an update pertaining to the impact of COVID-19 on business operations and anticipated impact of the government relief package on the business.
As per a trading update released on 31 March, G8 updated its stakeholders regarding that the Government’s wage subsidy campaign for eligible businesses to obtain wage support of $1,500 per employee on fortnightly basis. The payment is to be made to employers for up to 6 months for each employee employed as at 1 March 2020 and is in employment at present. It applies to full-time & part-time workers and also, casual workers employed for at least 12 months.
CEO Gary Carroll stated, “Federal Government has reinforced its dedication towards helping Australian families, early childhood education and care providers and workers amid coronavirus pandemic. The firm will continue to work closely with the government on further support measures for the sector and families.”
The Group has implemented a range of health, hygiene and safety practices across its centres and continues to be in regular connection with families and team members on the matter.
G8 continues to follow full advice and direction of the Federal and State health and education departments and is in regular contact with them to ensure the Group has the latest information and all necessary precautions are being taken.
Also, due to the rapidly evolving environment amid COVID-19, the Board has decided to postpone the payment date of the dividend until 30 October 2020.
Mayfield Childcare Limited (ASX: MFD)
Mayfield operates childcare centres providing quality care and education to families.
The stock price of the company fell from a high of A$1.13 on 19 February 2020 to A$0.5 on 24 March 2020 due to coronavirus pandemic, and picking up some momentum thereafter.
The stock traded at A$0.75 on 3 April 2020, down 8% .
The Group started 2020 in a strong position with occupancy up 0.5% on a like-for-like basis for the first 12 weeks of the year across 21 centres, as per its trading update on 23 March 2020.
According to Mayfield, the business has not experienced any significant financial impact due to coronavirus pandemic. The management team responded quickly to government advice and implemented strict health and hygiene procedures.
The Group withdrew its CY 2020 earnings guidance and has decided to defer payment of the shareholder’s dividend announced on 31 March 2020, from 27 March 2020 to 25 September 2020 due to escalating COVID-19 pandemic. However, if the virus is contained, the Board will consider bringing forward payment of CY 2019 dividend.
Think Childcare Group (ASX: TNK)
As per the trading update of childcare provider Think Childcare, occupancy continued to trend upwards across 53 of 72 services on a like-for-like basis against 2019, and there has not been any significant negative impact on the demand of its services due to COVID-19.
The Group has a flexible workforce enabling it to move its cost base with demand.
The company recognises Government’s efforts in aiding families and childcare sector with the income support. Apart from 62% of the income-based on Child Care Subsidy (CCS), the government supported the Community Child Care Fund Special Circumstances Grant Opportunity to aid the sector impacted by COVID-19.
The Group strictly follows general hygiene practices under the National Quality Standards (NQS).
The stock price of the company fell from a high of A$1.32 on 26 February 2020 to A$0.6 on 24 March 2020 due to coronavirus pandemic, before it began to move up. The stock traded at A$0.89 on 3 April 2020, down 11%.
Amidst the childcare support provided by the government, the sector needs to be closely monitored to gauge growth trajectory. Fundamentals, impact on business and financials, along with the business outlook need to be analysed before taking any investment position.
