Despite all the corporate cash grabs to profit from the Government’s Child Care Subsidy boost, there’s plenty of profit opportunity in the next age bracket up too with tutoring provider Kip McGrath (ASX: KME) issuing an earnings upgrade, primarily from rising demand for tuition services.
Government-affiliated tutoring provider Kip McGrath forecasts a revenue boost, citing improved trading conditions come H2 FY23. Its FY23 revenue is expected to be between $26.9 million and $27.3 million, up 10% on PCP. The Company is also investing in “forward growth” opportunities and expects EBITDA to be between $6.4 million and $6.8 million, while FY23 net profit is expected to be marginally behind the prior year at $1.7 million to $1.9 million.
While the Company did not reveal the source of its rosy financials, it is a nice change from the pattern of companies exploiting the upcoming childcare subsidy changes in the age group below Kip McGrath’s primary-age tuition.
In H1 FY23, Kip McGrath reported a net profit decline of 29% to $650k, with an EBITDA loss of $0.61 million on revenues of $0.29 million. Its net profit is still set to lag, but the Company has cemented a revenue increase. Other education operators, including ASX-listed G8 Education (ASX: GEM), Mayfield Childcare (ASX: MFD) and Think Childcare (ASX: TNK), are also likely to see revenue boosts in the months ahead if they keep up the rate hikes.
Starting July 10, 2023, the Australian Government is boosting CCS to make childcare in the country cheaper. The maximum amount of CCS is increasing from 85% to 90% for families earning up to $80,000. If you earn over $80,000, you may get a subsidy starting from 90%, and this will reduce by 1% for each $5,000 of income your family earns.
However, how much subsidy you get will depend on your “circumstances”, i.e. your family income, number of kids, how much you and your partner work, and so on. While the boost is meant to ease stress for parents, allowing them to go back to work without stress, childcare companies have seen this as an opportunity to increase fees.
Early childhood education and care provider G8 Education is set to lift its fees on the very day that the subsidy kicks in (subtle much?). In a letter to the parents, the Company noted, “Our sector is facing a number of challenges and cost pressures, and so to ensure we can maintain our high standards, we have had to review our fees.”
G8 claimed that the Fair Work Commission’s recent rate hike of 5.75% also played a role in the fee hike. It went on to cite rent increases, high energy costs, inflation and such to justify its increase, only to finally end with—“For many families, the changes to the Child Care Subsidy, which come into effect on 10 July 2023, will help offset an increase in fees.” This is the second time this year that G8 has increased its prices, after having done so in January when it raised its fees by 6%. Last year, too, it undertook a fee hike.
This may be good news for shareholders but not so much for parents.
A 2021 report had found that childcare is unaffordable for two in five Australian families. For some, it is more expensive than buying groceries and paying utility bills; essentially, childcare costs more than life itself. After all, over the past eight years, the cost of childcare has increased by over 40%. While Government subsidies, like the one set to launch in July, are meant to take the load off of parents, especially in the ongoing inflationary environment, companies’ reactions are doing little to ease the stress.
At a time when groceries, utilities, and everything else has shot up its prices, parents might be left with no choice but to skip work to save on childcare.
Alinda is a Business Reporter for The Sentiment
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