One of Australia’s leading childcare operator, G8 Education Limited (ASX:GEM) has been recently in news for the successful completion of its institutional placement and institutional component of its accelerated pro rata non?renounceable entitlement offer of new fully paid ordinary shares that raised a total of $ 227 million at $ 0.80 per new share.
We will look into details of this latest development and the Company’s stance amid the ongoing COVID 19 scenario, but foremost, a quick acquaintance with GEM.
GEM- Providing Quality Early Childhood Education & Care to Australians
With the vision to be the ones that parents and policymakers prefer to partner with in nurturing and inspiring the next generation, GEM has a portfolio of outstanding early childhood education brands that focuses on the importance of early childhood education and outstanding early childhood education management.
Placement & Institutional Entitlement Offer
On 2 April 2020, pending a company announcement, the trading of GEM securities was put on hold.
On 6 April, these securities were suspended from quotation, as the Company planned to provide a market update on the impact of COVID-19 on current trading performance and the forecast impact of the Government Support Package on GEM's operations and financial performance. This suspension was further extended, as GEM proposed to undertake a capital markets transaction.
The Company’s announcements have been ever since awaited by investors and market participants. Finally, on 14 April, GEM announced the successful completion of a placement and an entitlement offer (announced on 9 April 2020).
Royal Bank of Canada (trading as RBC Capital Markets) and UBS AG, Australia Branch are the appointed joint lead managers and underwriters to GEM’s equity raising program.
As per the Placement and Institutional Entitlement Offer-
- GEM raised $ 227 million at an offer price of $ 0.80 per share
- There was a noticeable strong support from both existing and new investors, with a take up rate of ~ 99.7% by eligible investors under the Institutional Entitlement Offer
- ~ 278 million new shares under the placement and institutional entitlement offer were to be allotted on 15 April 2020
- Trading on the ASX on a normal settlement basis was due to commence on 15 April 2020
- The voluntary suspension was lifted post market open on 14 April 2020 for the GRM shares to recommence trading
- The fully underwritten retail component of the Entitlement Offer is likely to raise ~ 74 million
- The retail entitlement offer will open on 20 April 2020; eligible retail shareholders who take up their entitlement in full can also apply for additional shares in excess of their entitlement up to a maximum of 25% of their entitlement under an oversubscription facility
Government Support Measures Back GEM Amid Pandemic
As COVID 19-impacted trading conditions may continue for at least the next six months, the Company is undertaking various scenarios including a significantly longer COVID-impacted period. Needless to say, Government support measures are the need of the hour for businesses to sustain in the market turmoil.
On 2 April 2020, the Australian Federal Government announced the new Early Childhood Education and Care Relief Package, with payments representing 50% of each centre's average revenue for the two weeks up until 2 March 2020. GEM estimates that the relief package will result in monthly revenue falling to ~ $33 million for the package duration.
From 6 April 2020, in lieu of the Child Care Subsidy and the Additional Child Care Subsidy, payments were scheduled to be made directly to early childhood education and care services on a weekly basis. The initiative is targeted towards providing support to keep centres open and employees in their jobs. The payments will complement the JobKeeper Payment announced by the Prime Minister on 30 March 2020 wherein a $130 billion package was announced to help keep many workers across Australia employed and support businesses affected by the significant economic impact caused by COVID-19.
GEM will be eligible for the JobKeeper payment for all full time, part time and long-term casual centre and corporate team members employed as at 1 March 2020, till those team members remain employed by the Group.
How Will GEM Benefit from the Equity Raising?
Amid the novel coronavirus, the Company’s paramount aim is to maintain the safety and wellbeing of the children. It is also implementing a number of interim business initiatives to mitigate near-term financial impact, like managing overall wage levels, optimisation of team rostering in accordance with JobKeeper subsidies, reduction and deferral of non-essential capital and operating expenditure, and negotiations with landlords around rental agreement amendments.
The Equity Raising and other capital structure initiatives are likely to offer GEM with a strengthened balance sheet and increased flexibility through the pandemic and position the Company well to pursue potential growth opportunities.
As CEO and MD Gary Carroll states, cash preservation and capital measures announced including the equity raising, offer the Company with additional liquidity and financial flexibility to navigate this current period of market disruption.
The stock last quoted at $ 1, down by 4.762% on 15 April 2020. The Company has a market cap of $ 483.19 million, P/E ratio of 7.69x and annual dividend yield of 10.24%.