@jahmez $IEL has been on my watchlist for 4 years and, today, I took an initial position (RL only as this is a proven "wealth winner" so I won't hold on my SM portfolio).

This didn't make the cut of my list of priority stocks to add during the pandemic SP crash, and I equally missed the opportunity during the sell-off in mid-2022 as my attention was elsewhere.

So what will the impact of the move in Canada be? It simply moves that market to the same status as $IEL faces elsewhere, where it faces competition in English language testing (ELT). For sure, that competition will reduce its earnings growth in Canada, but frankly anyone whose models assumed sustained monopoly positions for the long term was smoking something.

While ELT is a large portion of total revenue (65% in FY22), it is a smaller proportion of the gross margin. This is because much higher margins are earned by the student placement service (85% vs. 45%).

Canada accounts for 27% of total student placement volume, so a loss of market share here will have an impact on the group, but this should be kept in perspective. Yesterday's 16% SP fall was, in my view, a definite and significant over-reaction.

$IEL is closely followed by several brokers, who also track some of its international competitors (e.g. Pearson), and so they have experience of seeing how competition has impacted earnings, growth and market share in other markets, such as the UK, as competition has unfolded. Two of the brokers who were bullish on $IEL, have downgraded target SP as follows, but reatin BUY ratings:

UBS: According to the AFR yesterday UBS wrote "Whilst a negative, in our view this reflects a one-off rebasing, but does not materially change our buy thesis. We remain positive on the structural thematics and potential acceleration of share gains in the student placement division, as a result of Fastlane.” Buy. Target drops to $30.25 from $33.45

GS: After a flash report yesterday flagging essentially that the impact was unlikley to be very significant (my words), overnight GS have provided a more detailed analysis and downgraded the 12-month target price from $35.70 to $30.60.

More generally, broker models are all over the place, because the international student market is still re-opening post-pandemic, and in some markets there have been capacity constraints in issuing of visas. So it is hard to model the forward volumes which drive earnings. (As a general point I like it when there are widely divergent broker views!)

Taking a step back, over the 5 years 2018-2023F, $IEL earnings CAGR = 24.5% and FCF CAGR = 25.5%. Today it stands on a forward P/E of about 40, with an ROE of 30%. So by any measure a quality business.

With a leading global position in a market that is itself forecast to grow annually at 5-7% over the coming years, this is the kind of market opportunity I am happy to take. $IEL has the potential to grow above the overall market if it can continue to focus on and achieve higher growth in the high-margin international student placement market. It should reasonably expect increasing competition in ELT, as the barriers to entry here are relatively low - so that is my base case assumption.

In addition, it continues to invest in innovation.

I have been burned before by catching a falling knife, so today I have only taken an initial position of just under 2%. $IEL is a quality growth company that adds some quality diversification into my portfolio, so depending on price action in the next few days, I will likely add a further 2% position.

"0145 GMT - The opening of English-language testing in Canada to IDP Education's rivals doesn't materially change UBS analysts' positive thesis on the stock. They note that a similar shift in the U.K. resulted in a 10% market-share loss. The hit in Canada could be up to 30%, they say. Yet IDP's IELTS test still has several factors in its favor globally, including payment structures and its offering via paper as well as online, they add. UBS cuts its target price 9.6% to A$30.25 and maintains a buy rating on the stock, which is up 1.3% to A$21.995. ([email protected]; @StuartLCondie)"

Seems a bit weird that a potential loss of 30% marketshare with its competitive advantage being a 'paper & pen test' would not materially damage IDP's outlook.

Disc: Don't hold.