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#Bull Case
stale
Added 2 years ago

Those not interested in a boring (but necessary and government supported and encouraged) business which has good growth prospects and will earn double digit returns plus double digit grossed up dividends, look away now!

I refer to asset-light Mayfield Childcare (MFD) which has just executed a transformational acquisition of an additional 14 centres. Judiciously it has done so with a combination of issued scrip, a generous cap raising and some debt. The acquisition was done at an okay 4.9x EBITDA multiple with the vendors ending up with 40% of MFD so they have significant skin in the game.

More importantly Genius (the vendor) has entered into an incubator agreement whereby its remaining 15 centres will be hand-fed to MFD when certain metrics like occupancy rates minimum retainable EBITDA etc. are met. That’s an additional 40% growth over the next 5 year, but expected to be sooner.

Now let’s look at the macro scene to determine organic growth prospects. No great secret that the one income family where dad arrives home promptly at 5pm to play with the kids is dead and buried. Property prices make a two-income family an absolute necessity, but what to do with the kids? The government knows this too, plus it knows about the acute shortage of workers in Oz presently, and so it is more than willing to underwrite the childcare system with generous benefits. Yes, organic growth can be expected, but not likely to be mind-numbing as our birth rate continues to head south at around 1.5 kids per couple (not even at replacement level of 2.1 kids). That said we have enjoyed one of the largest population growth rates in the western world, courtesy of migration and this must surely continue.

Yep. childcare is now a permanent part of our societal fabric and MFD will enjoy great growth because of it (provided it properly executes its roll our program). Plus, this is a stable industry (lock downs aside).  

Let’s lift the hood on the numbers. MFD reports on a CY basis so forget CY21 as it will not reflect the larger entity and it has been lockdown ravaged given that its base is totally in Victoria. That said, eps are expected to be around 10c with a 4.5c divided. CY22 however will be a different kettle of fish with eps around 14c to 16c and a ff divvy 9c to 10c. Current SP is $1.25 and this may trend lower given the cap raise has been done at $1.05.

On these figures it’s no wonder the offer to the soph investors was snaffled up. By my calcs that a grossed-up dividend return of 13%+. Pretty much ‘Calabrian Mafia’ type returns in this era of low, low returns.  

Disclosure: I hold and will be adding in the cap raising.

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#Financials
stale
Added 3 years ago

MFD will never shoot the lights out and it will never be a Hare, but it does make for a strong and steady Tortoise for those who are looking for a good dividend yield.

It is a solid operator in the child care industry, has added two new centres in recent months, its well managed with forecast net debt to equity around 36% at end CY21.

CY21 EBIT estimated @ $6.7m NPAT $3.85m  EPS around 12c and ff dividend of 7c. At $1.10 that's a gross return of 9% - enough to make this SMSF benefactor smile.

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