ABC on target with US surge ::

Date: 28/08/2007
Publication: The Courier Mail

CHILDCARE giant ABC Learning Centres yesterday posted improved margins in its critical US businesses, although management back-flipped on a commitment to disclose some profitability targets.

Brisbane-based ABC, catering for children aged from infants to schoolchildren, also predicted better US margins as enrolments increased and underperforming centres were closed.

Net profits of $143.1 million represented a 75 per cent rise and were slightly above some analyst expectations.

"These numbers have been supported by all of our divisions," chief executive Eddy Groves said.

A fully franked 9 a share final dividend was declared.

While some aspects of ABC's full-year result received positive market responses, its profitability in terms of return on equity (ROE) was questioned.

"ROE has for the first time in five years improved, which is a positive, but it hasn't improved materially and it needs to do so pretty quickly to justify the current price," Clime Asset Management managing director Roger Montgomery said.

Clime calculated ROE (stripping out one-offs and including franking on dividends) as rising from 7.8 per cent to 8.4 per cent. Mr Montgomery said this needed to lift to 16 per cent to 20 per cent to justify the existing share price. The company's ROE has been affected by raising of investor funds used for expansion.

Yesterday's presentation did not include any ROE target, despite Mr Groves earlier pledging to do so.

"What we're focusing investors on is the increased revenues and the increased margins," Mr Groves said yesterday when asked about this, adding other targets included centre operating profit.

ABC shares rose 21 to $7.07 but were off the highs of $8.80 set last year. Profits rose as ABC acquired and integrated businesses in the US, UK and Australia. It now has more than 2200 centres globally.

Citigroup analysts said the result was "better than expected" and that "the upside surprise was in Australasia".

Paul Xiradis, of funds manager Ausbil Dexia, which has a stake in ABC, described the result as "pleasing".

The US acquisitions were "starting to work for them", Mr Xiradis said, adding there was room for further margin improvement.

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