I’m going to keep it short and sweet. I’ve sold out of all my Affinity Education Limited (ASX:AFJ) because my thesis is broken. In my very recent article on the company, I compared Affinity Education to G8 Education Group. I wrote:
Maybe Affinity Education has bought the worst Childcare Centres on the market, or their centres are simply not as impressive as G8′s. Because of a relatively short history as a company, we just don’t know when it comes to Affinity Education.
However, I’m happy to hitch my wagon to the master of operations at Affinity Education, Gabriel Giufre. Ms Giufre has 14 years of experience working in childcare, is a major shareholder, and build up Eternal Echoes Pty Ltd, a company that sold its management rights to Affinity. She will be assisted by Ms Fiona Alston, who seems like the kind of person who will make sure that the childcare centres nurture their young charges. If these women deliver, I think Affinity Education will be rerated.
I can no longer support these propositions (they may be true, they may not be true). The sentence in bold is no longer true. This thesis is broken.
If you look around, you will realise you are at a website called Ethical Equities. It's called this for a reason. I seek only to invest in ethical companies: it is not unknown for companies on this website to be criticised by readers, after all everyone has their own ethics. I have been convinced that Affinity does not belong on this site.
Gabriel Giufre is married to one Samuel Christopher Giufre a.k.a Christopher Samuel Giufre. This fellow is currently being sued in Queensland. One of the people suing him has a litigation guardian (the other is Westpac). The court has not ruled on Chris Giufre's cases. He might be entirely innocent.
These facts prevent me having the level of confidence in the company that I previously had. Affinity Education is removed from the Hypothetical Ethical Share Portfolio at $1.50 (yesterday's close - I updated the old article yesterday to reflect this), and if you have a problem with this, I suggest you find out why somebody who requires a litigation guardian is suing him.
At any rate, none of this reflects whatsoever on Affinity Health, I just have particularly pedantic standards of risk management, plenty of fish in the ASX All Ordinaries.
This is the only mention Chris Giufre gets in the Affinity Education Prospectus [my bold]:
Gabriel Giufre holds an indirect interest in eight of the Managed Centres. Gabriel’s interests arise either as a result of her husband Chris Giufre being a director of a company that owns a Managed Centre, or companies in which Mr Giufre has a direct of indirect shareholding in turn owning shares in the owner of a Managed Centre, or Gabriel being a potential beneficiary under a discretionary trust, the trustee of which holds an interest in one or more of the Managed Centres. Gabriel does not have any active role in any of entities that own the Managed Centres.
Affinity Education bought the management rights of 11 childcare centres from Eternity Echoes Pty Ltd, a company controlled by the Giufres. Eternity Echoes is a top 20 holder of Affinity Education. According to the prospectus, “The business assets of Eternal Echoes will be acquired for $1 million of equity with the majority of the acquired assets represented in goodwill.”
Affinity Education also bought a childcare centre from Bambini Early Childhood Development Boyne Island Pty Ltd, of which Gabriel Giufre is a director and shareholder. This acquisition was made with cash and shares. To quote the prospectus: “all but one of the Owned Centres will be receiving cash as consideration.” Incidentally, Chris Giufre is apparently the founder of Bambini Early Childhood Development. I found this presumably out of date information on Zoom.info:
"Chris also founded the Bambini Early Childhood Development Group in 2006, and is involved in all aspects of the business which include acquisitions, design, construct and supervision of operational management to develop prestigious childcare centres in Queensland. His focus is to manage the company's continued growth and prosperity by collectively directing affairs and guiding the organisations consistent profitability. Chris is actively implementing a vision targeting the niche sector set to challenge mainstream childcare to sustain a competitive advantage."
The prospectus says:
"Affinity Education is acquiring the management business of Eternal Echoes (the Management Entity), which has operated and managed a number of child care centres since being founded in 2005"
Here's some more publicly available info:
So, I feel pretty bad about altering my opinion so quickly. Maybe share price will continue to go up... I think this business is about buying smaller businesses for, say, 4 x EBIT and then being priced on the market at 6 x EBIT, or whatever. It just goes to show that publishing a thesis is a great way to have it tested. Thanks.
The Author has no financial interest in Affinity Education. Nothing on this website is advice, ever. This post is for my own reference!
Sign up to the Free Newsletter to receive the best research, first.