Cost-of-living pressures and the inflationary pressure on raw materials is having an impact on childcare operator Nido Education (ASX: NDO) which has forewarned that it is unlikely to meet the profit expectations for 2024 that were outlined in their IPO Prospectus when listing on the ASX in October 2023.
The childcare centre operator has cited delays in the opening of new childcare centres that were planned for CY24 which has now been pushed back into CY25, citing issues within the construction industry. Subsequently, Nido now expects its profit before tax to fall 10% below the projections set out in its Prospectus.
The delays have affected 14 new centres initially scheduled to open this year. These construction issues include supply chain disruptions and labour shortages that have plagued the sector, leading to widespread delays in project completions across other industries, including housing. Nido had anticipated revenue and EBITDA contributions from these new centres in 2024, but the postponement has resulted in a $3.5 million shortfall in expected income.
Despite the profit downgrade, Nido Education’s overall financial health remains solid. For the first half of CY24, the Company reported revenues of $73.7 million and an EBITDA of $7.5 million. These figures reflect the Company’s positioning in Australia’s early childhood education industry where chain operators like Nido capitalise on the Australian government’s Child Care Subsidy program through their large scale for lower operating costs.
Nido’s updated forecast projects a profit before tax of $21.7 million for CY24, which is approximately 10% lower than the Prospectus forecast but is expecting that the unrealised $3.5 million of revenue will commence from CY25 onwards if those parents have not found a suitable alternative provider in CY24.
Nido’s pipeline for new centres remains strong, with plans to get back on track with its expansion strategy by late 2025 or early 2026. Nido aims to open around 20 new centres annually, a pace that the company believes is sustainable once the construction industry stabilises.
In terms of operations, Nido’s portfolio of centres continues to perform well, although the Company has noted a recent softening of new enrolments across the childcare sector. This trend, which Nido attributes to rising cost-of-living pressures, the continued prevalence of work-from-home arrangements, and a shortage of qualified childcare workers, has tempered the Company’s earlier expectations of outperforming its Prospectus forecast.
However, Nido remains optimistic about its future growth prospects, highlighting that it is currently receiving over 400 enrolment enquiries per week.
In a further boost to the sector, the Federal Government recently announced a 15% pay increase for childcare workers. Nido Education believes this move will attract more qualified labour into the industry, helping to alleviate the staffing shortages that have impacted enrolment conversions and occupancy levels. The government’s ongoing support for working families, through initiatives aimed at increasing the capacity of childcare centres, is also expected to benefit the sector as a whole.
Looking ahead, Nido has forecast a full-year dividend of 5.8 cents per share, payable in March 2025, based on a 65% payout ratio. This dividend is subject to audit and board approval, but the Company has assured shareholders that the payment will not impede its capacity to pursue growth through acquisitions.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, bloodstock enthusiast and former Analyst.
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