Think Childcare (ASX:TNK) share price soars, beats FY20 guidance

The Think Childcare Ltd (ASX: TNK) share price is currently up 7% after the company announced its FY20 result and told investors that it had beaten its guidance.

Think Childcare is one of the largest childcare operators in the country.

FY20 result impresses

Think Childcare’s group underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $26.8 million was an increase of 89% compared to the prior corresponding period. It was actually 7% better than the guidance range it had previously given of $24 million to $25 million.

The company boasted that this result demonstrated significant momentum as it continues to execute on its strategy as Australia’s leading provider of premium childcare services to suburban families.

Management said that there has been a solid rebound in occupancy driven by recovery in existing enrolments and new enrolments. The enrolled occupancy peaked at 79%, with the attendance occupancy reaching 73%.

The business said that there has been a significant return from its marketing investment during the COVID-19 period with 43% of total enrolments being new at 31 December 2020.

Think Childcare said it recorded $30.1 million of underlying EBITDA in the 2020 calendar year, which was up 104% year on year, with an expected similar result in the 2021 year despite approximately $4 million of increased of corporate costs in the current year to support future growth.

The company finished with $22.9 million of cash at 31 December 2020.

Think Childcare dividend

The childcare business’ dividend for 2020 was 12 cents per share, representing a 30% cut compared to 2019.

Think Childcare share price

Over the last year, the Think Childcare share price is up 66% as it recovered from COVID-19 impacts. Since the start of September 2020, the Think Childcare share price is up 173%.

2021 Outlook

The childcare business said that the 2021 occupancy has started ahead of 2020 by 2%, driven largely by its incubation strategy. That’s a business called Think Childcare Development (TND) which is the largest developer of purpose-built leasehold childcare services to meet the Nido brand requirements.

TND builds up a childcare business before selling it to Think Childcare at a 75% occupancy rate at a valuation of around 4 times EBITDA. It has a pipeline of 26 leasehold sites to be developed over the next two to two and a half years. There are currently 10 new services that are in ‘trade-up’. Management believe this unique model eliminates business transition risk. This pipeline will generate $25 million of service-based EBITDA within three years.

Enrolments for the first eight weeks of 2021 are ahead of the same time as last year.

It expects to generate $26 million of underlying EBITDA in the current financial year.  That includes an investment of $2.4 million in new roles and the $1.6 million in the annualised impact of roles added in the 2020 calendar year to support future growth which will be subject to ongoing monitoring of trading performance.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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