Assessing G8 Education’s Valuation After Goodwill Impairment And Suspended Capital Returns

Simply Wall St.

Feb 12

G8 Education (ASX:GEM) has drawn attention after announcing an A$350 million non cash goodwill impairment, suspending its final dividend and pausing its on market buyback, while keeping FY25 EBIT ...

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See our latest analysis for G8 Education. Those capital management changes have come alongside a sharp reset in expectations, with the 7 day share price return of 26.15% and 30 day share price return of 30.94% declines feeding into a 1 year total shareholder return decline of 62.69%. This suggests momentum has weakened over both shorter and longer time frames as investors reassess risk. If this move in G8 Education has you reassessing where you want your money working, it could be a good moment to broaden your search with 3 top founder-led companies With earnings guidance unchanged, a large non cash impairment booked and the share price down sharply, the question for investors is simple: is G8 Education now trading below what it is worth, or is the market already pricing in its future growth? AdvertisementMost Popular Narrative: 46.3% Undervalued G8 Education’s last close of A$0.48 sits well below the most widely followed fair value estimate of A$0.89 per share, so the current price is being compared against a narrative that assumes meaningfully higher long term earnings power, discounted at 8.97%.  The company's ongoing network optimisation through divesting underperforming centers, targeted centre upgrades, and enhanced operational efficiency positions G8 to lift occupancy and drive higher net margins as the sector recovers, with embedded procurement savings and cost control already expanding EBIT margins despite top line pressures.  Read the complete narrative. If you want to see what underpins that valuation gap, the narrative walks through how modest revenue growth, firmer margins and a future earnings multiple all combine into that A$0.89 per share fair value. The tension between relatively low revenue growth assumptions and much stronger earnings forecasts is where the story really gets interesting. Result: Fair Value of A$0.89 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, that gap to fair value assumes occupancy stabilises and cost savings hold up, while current occupancy pressure and rising compliance costs could easily challenge those assumptions. Find out about the key risks to this G8 Education narrative.  Build Your Own G8 Education Narrative If you are not fully on board with this view or simply prefer to test the numbers yourself, you can build a customised narrative in just a few minutes and see how your assumptions stack up against the market: Do it your way A great starting point for your G8 Education research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision. Looking for more investment ideas? If G8 Education has sharpened your focus, do not stop here. The real edge comes from comparing several strong ideas side by side before you commit.  Target higher quality at lower prices by running your eye over our list of 8 high quality undervalued stocks that may offer more compelling entry points. Build a steadier income stream by checking out 8 dividend fortresses, where yields above 5% are paired with an emphasis on resilience. Prioritise resilience first by scanning 5 resilient stocks with low risk scores, a set of companies that score well on our risk framework and could help balance out bolder positions.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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