How Will Nido Education Capitalize on New Childcare Subsidy Reforms?

Navigating a Challenging Landscape

Nido Education Limited (ASX, NDO) has provided a comprehensive business update amid a tough year for Australia’s early childhood education sector. The company points to a confluence of factors weighing on demand, including cost-of-living pressures, shifts in work patterns such as increased remote work, declining birth rates over recent years, and changes to school intake policies. Despite these headwinds, recent data signals a potential turnaround with birth rates beginning to rise again, supported by strong immigration of young families.

Financial Outlook and Growth Ambitions

For the full year ending December 2025, Nido expects its Service EBITDA to land between $28.5 million and $30 million, while Group EBITDA is forecast between $16.5 million and $18 million. These figures reflect the ongoing sector challenges but also the company’s resilience. Central to Nido’s strategy is its incubation growth model, aiming to open or acquire 100 purpose-built childcare services over the next five to six years. Since listing in late 2023, Nido has opened seven new services in 2024 and anticipates ten more in 2025, with half already licensed and operational.

Policy Changes Set to Shift Demand Dynamics

A significant development for the sector is the Australian Government’s introduction of the 3 Day Guarantee subsidy reform, effective January 2026. This policy replaces the existing activity test with a simpler model that guarantees childcare subsidies for up to three days per week, regardless of parental employment status. For example, a family earning $150,000 annually with one non-working partner, previously ineligible for subsidies, would now receive a 77% subsidy, dramatically lowering out-of-pocket childcare costs. This reform is expected to unlock demand from an estimated 100,000 to 190,000 families currently priced out of subsidised care, potentially benefiting operators like Nido.

Market Valuations and Acquisition Opportunities

Despite these positive tailwinds, the sector is experiencing a contraction in earnings multiples, reflecting a cautious investor sentiment amid economic uncertainty. Nido’s management acknowledges this cyclical downturn but views it as a strategic opportunity. The company signals readiness to pursue acquisitions of profitable childcare services at more attractive valuations, aiming to create shareholder value as market conditions improve. This opportunistic stance marks a shift from previous periods when Nido was less positioned to capitalize on such cycles.

Commitment to Quality and Compliance

Beyond growth and financial metrics, Nido reiterates its commitment to child safety, education quality, and regulatory compliance. The company highlights ongoing investments in training and systems to maintain high standards, positioning itself well amid increasing government scrutiny and expected policy initiatives to boost early childhood education participation rates. With the sector recognized as vital to Australia’s social and economic fabric, Nido’s purpose-driven approach aligns with broader national priorities.