- Federal government is set to end emergency relief package for the child care sector from 12 July, along with JobKeeper wage subsidy by 19 July 2020.
- Childcare subsidy will be reimplemented by October 2020, and until then child care providers will get transition payment of 25% of the centre's fee before Covid-19, while activity test ceases till 4 October.
- TNK and G8 have welcomed the transitional support as it will offer more flexibility to them during low occupancy period.
- IDP seems to be well-positioned in the market and intends to offer omni-channel experience using smart insights.
- Many factors need to be monitored to gauge the growth trajectory in the sector, including unemployment, income support, parents joining the offices, and students getting back to school.
At the beginning of April 2020, when Australia was battling with the pandemic, Morrison government had introduced free childcare plan to aid one million families. The free child care plan was introduced along with the JobKeeper wage subsidy for the sector as a crucial response to Covid-19 pandemic.
Transition Measures in Place
Federal government has confirmed that by October 2020, the transition arrangements will be back to Childcare Subsidy. Jobkeeper program for workers in the childcare sector will end on 19 July 2020.
However, to support the early learning sector during this period of decreased occupancy levels, the care providers will get a Transition Payment equal to 25 per cent of each centre's fee levels before the impact of the pandemic, during 13 July-27 September.
Given these dynamics in the childcare sector amidst COVID crisis, let us discuss three childcare and education-related stocks.
Think Childcare Group (ASX:TNK)
TNK recently provided an update linked to government's recent announcement on child care relief package and transition arrangements. When the pandemic erupted, TNK reduced its employment costs to remain profitable during the crisis. Now, most of the team has returned to work, and the workforce is further expanded by five per cent to meet the growing demand for child care services.
With the easing of pandemic related restrictions, TNK has witnessed a return to school. Victoria is the last state to resume all students back at school five days a week, and TNK's 60 per cent of services are in Victoria state.
Potential Impact on TNK:
- Pre-COVID-19 occupancy: 68 per cent with 63 per cent attendance
- 25 per cent transition payment: 17 per cent (25 per cent of the Pre-COVID-19 occupancy of 68 per cent)
- Current occupancy: 74 per cent with 64 per cent attendance
- Projected decline in occupancy: 11 per cent (because CRP will cease, 15 per cent drop in usage)
- Effective occupancy w/e 5 June: 80 per cent paid occupancy
The seasonal movements and economy reopening will most likely increase TNK's base occupancy. The families who are enrolling now, they are aware that the care will not be free from 13 July onwards and TNK is expecting that these families will continue their enrolment.
The transition payment offers TNK with a safety net for the profit and cost of labour will be aligned to TNK's attendance. The sector will get sufficient preparatory time for the new norms in October 2020, according to the company.
The Federal Government pays CCS directly to TNK a week in arrears, and with the majority (85 per cent) of average fees being subsidies, families could pay as little as AUD 18 per day.
Earlier TNK got 62 per cent of its income in the form of the CCS and with the current circumstances, it is anticipated to grow. Furthermore, in the wake of the pandemic, the care from family and friends are also limited, that may also increase the demand for child care.
With the economic reopening and workplaces resuming, the demand is going to grow, and the government's plan of transition back to CCS is excellent support, believes TNK.
On 17 June 2020, TNK was up by 2.3 per cent to $0.875 (3:15 PM AEST).
G8 Education Limited (ASX:GEM)
The Transition Payment will be around half of the amount received under the ECEC Relief Package, but it will be in addition to the normal CCS and co-parent payments.
While the Transition Payment will be paid from 13 July 2020 until 27 September 2020, it also has a condition that the care providers will have to maintain average gross employment levels during this period. Moreover, the families affected by the pandemic can access to the CSS until 4 October 2020.
G8 Chief Executive Officer and Managing Director Gary Carroll said “it is great that the sector is getting recognition of being significant to the Australian community and economy”. He also acknowledged the contribution of the team during this turbulent time, and the main focus is to continually provide the best early learning experience to Australian children.
As per the company, the transitional arrangements will offer flexibility to operators to support the families during this recovery phase, and G8 looks forward to continuing work with the federal government and other stakeholders for providing right settings to the team members and kids' families.
Financial Impact on G8
Even at subdued occupancy level than current, with the revised support packages, G8 is anticipating no worse position as compared to the scenario before the support measures.
Apart from the Transition Payment, G8 is also expecting to generate profit from revised CCS and parent co-payments that are as per the booking at G8 centres each week, and it will not depend on physical attendance.
There will be many factors impacting the booked occupancy, including students returning to schools and parents to their workplaces, unemployment rates, and also the reintroduction of parent co-payments under the CCS arrangements.
On 17 June 2020, GEM was down by ~3 per cent to $0.922 (3:15 PM AEST).
IDP Education Limited (ASX:IEL)
IDP is a global enterprise into education sector operating across 58 countries. It began its journey in 1969, and brand IDP was introduced by 1981. After a few years in 1986 when the country opened its doors to the international students, IDP was the top education service provider for the foreigner students.
If we talk about 2019, the company celebrated its 50th anniversary and laid the foundations for future growth. The focus shifted from analogue service to offering omni-channel experience driven by smart insights.
IEL’s financial position seems to be robust as on 30 June 2019, while the total assets of the company stood at AUD 369.5 million, of which 36 per cent related to intangible assets and the remaining was a collection of cash, plant and equipment, and trade receivables and property. The total assets were more than the total liabilities by AUD 153.9 million.
On 17 June 2020, IEL was down by ~0. per cent to $16.520 (3:15 PM AEST).
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