Avoca: G8 Education's financial discipline a key to success

Avoca: G8 Education's financial discipline a key to success. Australia's largest for-profit provider of long day-care services has achieved that status through a strategy of acquisitive rather than organic growth. It has maintained strong financial discipline, paying about four times earnings before interest and tax for most of its centres on long-term leases (G8 Education does not buy freehold). It has excellent business monitoring systems which facilitate timely troubleshooting on problem centres. G8 has about 7 per cent market share in Australia. We believe by the time the company reaches peak market share it will turn into a low-growth, high-yield investment. Given that the government provides about half of centre revenues, regulatory issues remain a key focus. However, the recent Productivity Commission report appears to be positive.