MFD - Mayfield Childcare

[System]

Upon listing, Mayfield Childcare will own 16 existing long day childcare centres located in and around metropolitan Melbourne, representing 1,360 licensed placed children.

It is anticipated that MFD will list on the ASX during November 2016.

http://www.mayfieldchildcare.com.au

 

[noirua]

Mayfield Childcare (ASX:MFD) expands Cairns portfolio to five with new childcare centre acquisition​

Mayfield Childcare (ASX:MFD) expands Cairns portfolio to five with new childcare centre acquisition

Childcare provider Mayfield Childcare (ASX:MFD) has completed the acquisition of a new childcare centre in Cairns, expanding its number of centres in the town to five.

themarketherald.com.au

With this acquisition, Mayfield has increased its total license capacity in the region to 417 places.

Mayfield paid $1.07 million for the acquisition, funded by existing debt facilities, and the new centre is expected to generate $214,000 in earnings before interest, taxes, depreciation, and amortization (EBITDA) over 2023.

Live charts: https://uk.advfn.com/p.php?pid=staticchart&s=ASX^MFD&p=0&t=1

https://uk.advfn.com/p.php?pid=staticchart&s=ASX%5EMFD&p=5&t=1

https://uk.advfn.com/p.php?pid=staticchart&s=ASX%5EMFD&p=9&t=1

 

[UMike]

Interim half year report was poorly received.
Pretty much at all time lows.

Raised my interest enough to investigate further

 

[divs4ever]

Interim half year report was poorly received.
Pretty much at all time lows.

Raised my interest enough to investigate further

i avoid childcare businesses on the regulatory risk

good luck if you decide to dabble

 

[Value Hunter]

Mayfield Childcare (ASX:MFD) expands Cairns portfolio to five with new childcare centre acquisition​

Mayfield Childcare (ASX:MFD) expands Cairns portfolio to five with new childcare centre acquisition

Childcare provider Mayfield Childcare (ASX:MFD) has completed the acquisition of a new childcare centre in Cairns, expanding its number of centres in the town to five.

themarketherald.com.au

With this acquisition, Mayfield has increased its total license capacity in the region to 417 places.

Mayfield paid $1.07 million for the acquisition, funded by existing debt facilities, and the new centre is expected to generate $214,000 in earnings before interest, taxes, depreciation, and amortization (EBITDA) over 2023.

Live charts: https://uk.advfn.com/p.php?pid=staticchart&s=ASX^MFD&p=0&t=1

https://uk.advfn.com/p.php?pid=staticchart&s=ASX%5EMFD&p=5&t=1

https://uk.advfn.com/p.php?pid=staticchart&s=ASX%5EMFD&p=9&t=1

5 times EBITDA seems like a very high multiple for a private company with limited growth potential earning only $214,000 in EBITDA. I would estimate given that its an entirely debt funded acquisiton the p.e. would be in the low double digits.
Without looking at the annual report if we assume a reasonable interest rate of say 7% on their corporate debt that is $75,000 in interest. Even if you assume amortization and depreciation are zero that would be $139,000 in pre-tax profit. If you thern apply the company tax rate of 25% for small businesses that would result in $104,000 in NPAT. That is a p.e. of 10.25. I can buy childcare centres for less than that myself, so why would I buy shares in a company that is overpaying for childcare centers when I can buy one myself for less?

In Australia roll up stories have a poor track record in general with a few exceptions here and there. I think part of it stems from the limited market size here and numerous roll up companies in every industry meaning that competition to acquire existing practices is often fierce leading to high prices being paid (e.g. roll up companies buying childcare centers, accounting practices, insurance brokers, financial planning firms, dental practices, medical centers, etc) Also due to the limited market size quality of acquisitons quickly goes down hilll once all the best operators/locations are bought up the lesser quality sites start to get bought.

The other thing is integration. Often the companies doing the acquiring don't have a good system in place to properly integrate the acquired companies and hence the back end systems become an unwieldy mess with too many silos. Also owner operators typically provide superior customer service to a corporate owned outlet due to the incentives.

Aside from that providing services don't typically have the economies of scale that providing goods do so therefore acquiring hundreds of centres/practices, etc gives you little or no advantage over the competition of independent operators (rarely can a company pay the landlord lower rent or the employees lower wages when they get bigger). When providing goods e.g. consolidating fast food franchise outlets economies of scale are meaningful because your cost of goods sold go down due to bulk buying discounts from suppliers, improved logistics (centralized distribution and storage) etc.

 

[Value Hunter]

What initally makes the roll up idea attractive to companies is the public to private multiple arbitrage. e.g. if your shares trade on the stock market on a p.e. of 14 and you can buy small competitors on a p.e. of 7 you can just keep issuing shares and profit from this (because public companies tend to trade on higher multiples then private companies due to liquidity, transparency and other reasons). It tends to work for a period of time but eventually the arbirtage opportunity dissapears because all the reasons above tend to cause problems to eventually surface which then contracts the p.e. multiple of the stock whilst at the same time due to the competition phenomenon mentioned above the multiples paid for the private companies they are acquiring eventually starts to creep up and the arbitrage opportunity dissapears.

 

[UMike]

Down over 12% today.

As the resident bottom picker even this one is too negative for me.
Great points VH. Think you are right on this one.