Pinned valuation:
Here’s a belated update on IDP Education following their half year results.
In summary, IDP Education continue to face tough conditions. They have declining student placements and testing revenue, particularly in India and Canada. They are however, well into cost control measures and price adjustments. They report to be committed to long-term growth through digital transformation, market diversification, and operational efficiencies.
I believe there is some murkiness in their reporting but nevertheless I believe they’re on a good path and that they have performed above market average notwithstanding their macro headwinds.
Revenue and Profitability:
- Revenue: $475.4M (down 18% YoY)
- Net Profit After Tax (NPAT): $59.7M ( down 39% YoY).
- Earnings Before Interest & Tax (EBIT): $95.0M ( down 35% YoY).
They state that the decline in revenue and profit was primarily due to reduced student placement volumes and English language testing. They also state that cost management measures helped mitigate some of these declines.
Business Challenges:
There was a decline in student placements (i.e. IDP placing students into universities abroad) of about 18%
- Canada: down 43%
- Australia: down 25%
- UK: down 24%
- USA: down 18%
- New Zealand: up 57%
- Ireland: up 28%
In terms of revenue, India, a key market, saw a 26% drop and China saw 4% growth, driven (they say) by UK placements.
A key part of their business is the English Language Testing (IELTS Exams) services. Revenue fell by 22% which they attribute to:
- Regulatory changes in Canada (this is a big one that has been on the horizon for a while now)
- Visa processing issues in key markets
- Increased competition in India saw IELTS revenue decline by 55%. Note that this is different from above as IELTS is different to student placements… We would for example not expect all IELTS students then go on to apply for university placements through IDP. (there are other agents)
Cost Control
They have been cutting costs aggressively to help combat the projected decline.
- Direct costs were reduced by 10% they say due to cost control across student placement and testing.
- Overhead costs fell by 16% (to $167.8M):
- Corporate expenses (-23%) they say due to lower headcount and discretionary spending.
- Marketing (-7%)
- They also mention that travel costs were cut.
- Gross profit margin declined from 64.6% to 61.3%
Dividend
They issued another 9c per share dividend (50% franked) for March 2025. (it was 9c in September.
Outlook
They comment that there are pressures from declining student volumes and changes to regulation but the call out their growth strategies which include:
- Using digital marketing and student services
- Expanding market presence in China, New Zealand, and Ireland, where demand remains strong
- Investing in technology and customer experience
- Continuing to drive cost efficiency and disciplined financial management
Critical Assessment
I’m always mindful that the combination of macro challenges can be used to hide the truth behind competitive pressures. To that end, there are some areas to keep an eye on for the future. I’m concerned that loss of market share might be hidden behind a ‘market conditions’ narrative.
IDP attributes the 18% revenue decline largely to lower student placement volumes (due to regulatory changes and visa processing delays) and a 55% drop in English Language Testing revenue in India (due to Canada's student visa caps)
At the same time their price per student placement actually increased by 12%
So to what extent should the price increase have mitigated revenue losses and to what extent is IDP losing market share to competitors?
They reported:
- 15% drop in Student Placement revenue (from $287.5M to $244.2M).
- 12% increase in average price per student placement.
- 18% drop in placement volumes.
For ease of calculation let’s assume a volume of 100 courses.
- H1 FY24
- Revenue: $287.5M
- Volume: 100
- Average Price per Placement: $287.5M / 100 = $2.875M per unit
- H1 FY25 (which includes a 12% price increase)
- New Average Price: $2.875M × 1.12 = $3.22M per unit
- Placement Volume Decline: 18% drop → New Volume = 82 units
Expected Revenue in H1 FY25:
- Revenue = 82 * $3.22m = $263.9m
- Reported Revenue = $244.2m
- Gap = $19.7
For those newer to IDP, we have been expecting a change to student numbers in Canada due to international student caps and removal of the Student Direct Stream visa pathway in Canada.
But why this gap? Is it really just down to fee variances? If any Strawpeople know I’d be glad to find out if I’ve made an error here?
That little Tax Issue:
There’s an ongoing tax dispute in India which on the surface looks like they may owe, I think up to $121m if they are unsuccessful. There’s no provision in their accounts for such a penalty. They believe that the risk of paying the full amount is low based on legal advice, historical similar rulings etc. but we need to keep an eye on this one, not least because there’s no provision made for it.
Why I’m bullish
Notwithstanding negatives I’m bullish:
- They’ve increased average revenue per student in the ‘Student Placement’ category which suggests a moat built through the perception of their quality and the relationship they have with universities.
- Growth in NZ and Ireland for student placements is positive diversification
- They have a growing cash balance, and have enough to make growth investments
- They have been successful in implementing cost controls, even if it may have been more reactive rather than proactive. This will set them up when the macro condition improves.
- Folks still want to travel overseas to study. Global demand in this space is growing and IDP is one of the major players in this space. There will be a recovery at some point.
Assuming that we see turn-around and growth at above average rates (assuming 4.5% CAGR in global education) over 10 years I think that the current share price is justified for a hold. I’m not sure we’ll see any significant changes in the next two years but I’m looking to a one to two year rebound in the next five years, then followed by a period of stability.
In the very short term I’m hoping that conditions result in further share price decline into the high $6.XX a share arena, but my monkey brain is saying I should take a position now because I think they're well positioned to out-compete in this space.
Held IRL and SM
My 2c on IEL, one of my "the tail that don't wag" stories, my points from the result
- i thought the cost out was disappointing; historically, they have done better, but i note they appear to be bringing Chinese distribution in-house, which adds cost.
- to be an investor in IEL you must believe in the LT intl Student Growth story, otherwise, why bother, it's done. Looking at the vols below, to give a broader perspective, IELTS looks currently below trend and maybe a future indicator of SP, which only looks back to trend (ie could go below).
- i did note the loss of share as Indians u/p the Chinese. anyway, was the excuse offered? We shall see; any loss of share is a negative.
- There is little in ST political backing for the story, so this is an incubator at this stage. again a reason for some caution.
- my eps estimates assume a return to growth largely 2027 and back to the trend, which makes the investment cheap on these assumptions.
- i have added some below $10 but wait for concrete evidence of a turn before this comes into a large (top20) holding.
thats my view
@Trancer great notes.
Writing up $IEL was on my post results season to-do list, but you've saved me that task!
I am curious to see you say that you are bullish on $IEP, but you have a valuation of $6.90! Is that right?
Overall, the result was worse than I was expecting, based on my channel reads into each of their major markets. And I think several of the analysts were also negatively surprised.
GS seem to think they have still gained market share. But I'm not so sure and there is not much in it.
UK clearly has bottomed, recognising the role that International Students play in supporting the Government's desire to get the economy growing again, as well as the depserate state of fiances of several UK universities. https://monitor.icef.com/2025/02/uk-study-visa-applications-and-issuances-on-the-rise-in-2025/
But Australia and Canada are clearly in a trough - we are likely at the bottom (so that continues through to H2) - but what about thereafter? With both countries facing elections, it will be months before there is any policy direction. I've put some graphs below of Australia and Canada student visa trends to show the effects.
And what about the US? There is some evidence to indicate that the situations in UK, Australia and Canada have improved the attractiveness of the US as a destination for student from India and Africa.
However, the MAGA rhetoric is not particularly welcoming. It is clearly offputting to Chinese students, and there are stories that the US government will scan social media account of international students for evidence of risk factors around terrorism. Witness also the recent ICE detention of the pro-Palestinian protestor at Columbia. There are enough chill factors at play in the US at the moment to take some of the shine off it as a destination - which of course plays an advantage to Australian, Canada and UK.
In my investment thesis for $IEL I had picked 2025 at the trough with recovery in 2026, However, the trough is certainly deeper than I thought - will it be longer?
As a positive, management i.e., new CEO Tenealle Shaugnessy has proven agile in getting after the cost base.
Overall, I'm still of the view that the market has pulled back too far on this business and that from today, it still presents an attractive investment. Everything else is academic (pun intended!) Given the further SP decline, this is even more the case.
Figure 1: Austrlia Student Visa (Jul - Dec; as most recent data set available, Note: Jan-Jun and Jul-Dec are usually not hugely different, excluding 2020-21)
Orange line shows Jul-Dec 2024-25 is just below 2018-19, whereas I was expecting it to look more like 2019-20!
Figure 2: Canada Student Visas
