Rising Workforce Engagement And Urban Growth Will Boost Childcare Demand

Key Takeaways

• Improving enrollment conversion, digitalization, and labor efficiency position G8 for stronger occupancy and margin expansion than currently anticipated.
  
• Structural industry growth and resilient, policy-supported revenue streams enable G8 to outperform peers and drive earnings through targeted acquisitions.
  
• Long-term occupancy and earnings are at risk from demographic shifts, cost pressures, government policy changes, and rising competition in the early childhood education sector.

Catalysts

Provides early childhood education and care services in Australia.

• While analyst consensus expects moderate occupancy growth driven by inflationary fee increases and government subsidy expansion, the 9% year-on-year surge in inquiries-paired with proven improvements in conversion and enrollment-suggests the potential for a much sharper and more sustained rise in occupancy and revenue than currently factored in.
  
• Analysts broadly agree that exiting underperforming centers and cost optimization will steadily expand margins, but G8's sector-leading agency reduction, process streamlining, and digitalization could push net margin expansion beyond expectations, especially as labor stability allows for further center-level efficiency gains.
  
• Rapid increases in female workforce participation and dual-income families are creating a structural uptrend in childcare demand, positioning G8 to benefit from above-industry-average occupancy growth and supporting revenue acceleration as urbanization in key states outpaces new supply.
  
• Industry consolidation is set to re-accelerate in the coming years, and G8's robust balance sheet and proven execution in optimizing and scaling high-performing centers gives it unique capacity to drive bolt-on acquisitions at attractive multiples, boosting long-term earnings growth and return on capital.
  
• Enhanced government funding frameworks-alongside bipartisan political support for early learning-make revenue streams highly resilient and increasingly index-linked, giving G8 significant short
• and medium-term visibility over cash flows and de-risking earnings well ahead of most ASX peers.

G8 Education Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on G8 Education compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming G8 Education's revenue will grow by 5.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.7% today to 8.2% in 3 years time.
• The bullish analysts expect earnings to reach A$98.1 million (and earnings per share of A$0.13) by about August 2028, up from A$67.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the AU Consumer Services industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 1.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

G8 Education Future Earnings Per Share Growth

Risks

• Declining birth rates in Australia present a significant long-term risk to occupancy, as lower numbers of children reduce the potential customer base and may dampen revenue growth for G8 Education in coming years.
  
• The company is heavily exposed to fluctuations in occupancy rates due to its high fixed costs and operating leverage, evidenced by spot and year-to-date occupancy at the start of 2025 being meaningfully below the prior year; sustained declines could compress margins and threaten earnings stability over time.
  
• Persistent cost of living pressures and limited wage growth continue to impact the affordability of childcare for families, creating ongoing risk to enrolments and future revenues even as G8 Education attempts to mitigate these issues through incremental fee increases.
  
• G8 Education's reliance on government subsidies and policy for both family affordability and wage increases means that any adverse changes to government funding, regulation, or support could introduce material instability to revenue and net profit margins.
  
• The early childhood sector is becoming increasingly competitive, with not-for-profit and premium boutique providers gaining ground, potentially eroding G8 Education's market share, limiting pricing power, and squeezing future earnings growth.

Valuation

• The assumed bullish price target for G8 Education is A$1.7, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of G8 Education's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.7, and the most bearish reporting a price target of just A$1.15.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$1.2 billion, earnings will come to A$98.1 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 8.5%.
• Given the current share price of A$0.94, the bullish analyst price target of A$1.7 is 44.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.