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Morningstar | G8 Education's Occupancy Rate Finally Rising Again

We expect G8 Education to benefit from long-term demand tailwinds in the Australian childcare centre sector, including a growing population of zero- to 5-year-olds, an increasing proportion of children using childcare, an increasing female workforce participation rate, increasing time spent by children in care each day, and increasing childcare fees. Although G8 has mainly grown via acquisitions over the past decade, we expect growth over the next decade to be predominantly organic, and we forecast a mid-single-digit revenue CAGR. G8 has achieved strong EBIT margin expansion over the past decade, but the lack of an economic moat means we expect supply pressures to prevent further expansion, and we forecast margins stabilising around 20%. Despite our expectations of fewer acquisitions in future, we still believe the company should achieve a mid-single-digit EPS CAGR over the next decade.