Treasure Chest: Government Policy Positive For Child Care Companies

This story features G8 EDUCATION LIMITED. For more info SHARE ANALYSIS: GEM

By Greg Peel

Child care policy has been a hot topic in the lead-up to tomorrow night’s federal budget, with the government’s need to find spending cut solutions casting a cloud over rebates for middle class parents. Uncertainty and concern has seen the likes of child care centre owner G8 Education ((GEM)) de-rated over the past few months.

Yesterday’s pre-budget announcement regarding child care policy has alleviated those concerns, brokers suggest. Indeed, the government has apparently ignored the suggestion of the Productivity Commission that rebates for wealthier families should be reduced.

Assuming the government’s policy makes it through the Senate unscathed, a new rebate system will come into operation as of 1 July, 2017. At the top end, families earning a combined income of $170,000 will receive a 50% rebate, and at the bottom end $65,000 of income will attract an 85% rebate. All families earning under $170,000 will have access to an additional $30 per week.

Most surprising is the cap system, which restricts rebate levels to a specific amount. Under the new system, all families under $185,000 will have no cap on their rebates, while families over $185,000 will have a $10,000 cap, up from a previous $7,500. Up until yesterday, the fear was the government would be forced to rein in generous rebates for the more well-off, but it appears the opposite is true.

Not only does the policy dismiss that fear, it is expected more families will be encouraged to take up child care spaces. Given there are work obligations required to be filled by parents to be eligible for any rebate, this implies more families will look towards both parents working.

This is presumably the thinking behind the government’s plan. More workers, more productivity, more economic growth.

Stockbroker Moelis has upgraded its rating on G8 Education to Buy as a result of the policy announcement, with a $4.41 price target.

Canaccord Genuity suggests both G8 and Affinity ((AFJ)) are well positioned to benefit given their favourable exposures to low and medium income areas. Folkestone Education Trust’s ((FET)) portfolio of tenants is increasingly diversified and may see a mildly positive impact overall, the broker suggests.

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