Forum Topics IEL IEL Canada Caps Student Visas

Pinned straw:

Last edited 11 months ago

The Canadian government has introduced a temporary two year cap on International student visas. Here’s a quick summary below:(https://monitor.icef.com/2024/01/canada-announces-two-year-cap-on-new-study-permits/ , 22nd January 2024)

  • Canada will establish a cap on the number of new study permits issued to international students
  • The cap will be in effect for 2024 and 2025, and is described as a temporary measure
  • Canadian immigration officials anticipate that the cap will result in a 35% reduction in the number of new study permits issued in 2024, compared to 2023 levels
  • In addition to the cap, the government also announced today that as of 1 September 2024, students enrolled in programmes delivered via public-private partnerships will no longer be eligible for post-graduate work permits
  • The government will also move to limit open work permits available to spouses of international students
  • However, post-graduate work rights will be expanded for students completing graduate studies in Canada, with such students soon being able to apply for a three-year post-graduate work permit

My Take

To date I haven’t heard any comments from management at IDP Education (IDP) however it can’t be good news for IDP, particularly on top of the Immigration, Refugees and Citizenship Canada (IRCC) announcing the approval of several other English language tests (CAEL, PTE Academic, TOEFL iBT and CELPIP General) for the Student Direct Stream (SDS) visa program starting from 10 August 2023 (https://bellpotter.com.au/ideas/idp-education-iel-stiff-competition/)

Previously, only IELTS was accepted. SDS is an expedited study permit process for students applying to study in Canada from ~14 countries. In 2022 IRCC finalised ~739k study permit applications. Bell Potter estimates that ~45% of these are via the SDS and the test is taken ~1.7x on average equating to ~500-600k IELTS exams p.a.

Bell Potter has assumed IDP could lose approx. 30% of the SDS market in making adjustments to their forecasts (https://bellpotter.com.au/ideas/idp-education-iel-stiff-competition/).

Importance of the Canadian market to IDP?

IDP provided the following graph in their FY23 Financial Results Presentation (https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02700602-3A623946)

6adee02f7c6d1d095945724b98406de6b139f2.jpeg

During FY23 Canada made up 24% of the enrolments by destination.

If we assumed the Canadian market will be reduced by 35% due to the temporary cap (Canadian Immigration Officials estimate) , and IDP loses 30% of the reduced intake numbers (Bell Potter’s assumption), we could expect the Canadian market to decline by approx 45%. Using some rough assumptions and some even rougher maths, this could possibly result in a 10% hit to FY24 earnings. However, Canadas’s loss will most likely be another country’s gain, and the two year Canadian cap could end up having little impact at all on IDP’s earnings. We also need to take into account earnings growth in other markets which could offset any losses in the Canadian market. The other thing to consider is this is a two year temporary cap, and the total market could be back to normal two years time. I think this is just a hiccup for investors with a long term perspective.

Summary

It’s difficult to estimate what impacts recent changes to the Canadian market will have on IDP’s bottom line, but I think the worst scenario is a 10% impact to IDPs earnings. However, the rest of the world is still growing and I expect other education destinations will adsorb most of the Canadian visa cap losses. Half of these losses (visa caps) are temporary and the Canadian business could be back to normal in two years time. I expect double digit earnings growth to continue despite the Canadian set backs.

I think this is a unique opportunity to build a position in this wonderful business at under $20 per share. The price could fall further though as short selling is likely to continue following the Canadian visa cap announcement. With short positions now over 10%, IDP is currently the fifth most shorted stock on the ASX and it’s never an easy ride betting against the short sellers.

Held IRL (1.8%), SM (14%)

mikebrisy
Added 11 months ago

@Rick - great write up. I haven't fully gotten my head around this, but I wonder if - in a tightening policy on immigration (we're seeing it everywhere, not just Canada,; see write-up the morning in the Australian) whether there might be a second order effect, whereby quality placement services - in my view the bigger driver for $IEL than testing - actually become more valuable in an environment that is more constrained by the available places.

I'm certainly going to be scruitinising this one closely over the coming weeks. I hold a small initial position in $IEL and have been waiting for a pullback to build further. The growing short thesis and obvious first order response means holders should be prepared for short term negative SP movement, but as you say, this is a quality business for the long term and we may see some buying opportunities. I am going to be patient on this one, and see how this plays out for a bit - I have called the bottom too soon on others before and need to learn patience.

Disc: Held in RL, and not on SM

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Rick
Added 11 months ago

Thanks @mikebrisy. I don’t have a subscription to the Australian. Do you mind sharing a few relevant paragraphs (if you have digital access)? Otherwise I’ll make a trip to the newsagent and get one of those old fashion paper things! :) We have one house in our street that still gets the papers delivered. You’ve got to wonder about how viable the paper delivery business model is these days!

Yes, I need to do more research on the importance of different components of the business (including placements), to IDPs future earnings. I really look forward to reading your thoughts and contributions before I accumulate more shares below $20.

Cheers,

Rick

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mikebrisy
Added 11 months ago

@Rick - here's the full text.

=================

International student visa numbers fall amid migration squeeze

The number of international student visa holders approved to come to Australia is on track to plummet by more than 90,000 this financial year, as the federal government rejects an increasing number of applicants to curb the high levels of temporary migration.

The number of visas granted to offshore students dropped to 139,132 in the first half of the financial year, figures from the Department of Home Affairs reveal, with nearly 20 per cent of all applicants rejected. If the approval rate continues 91,715 fewer overseas students will arrive in 2023-24 compared with the past year.

International Education Association of Australia CEO Phil Honeywood said the figures were part of the government crackdown on giving visas to applicants who were more interested in work rights than study, which the government refers to as “non-genuine students”.

“The focus has been on winding back a large number of diploma-level vocational students doing courses such as diploma of leadership, and instead the primary focus is on students who can add skills to the Australian economy,” he said.

The total number of student visas approved – including for non-residents already in Australia – was 195,934, which is also on track to fall below the record 577,295 visas granted in 2022-23.

The change in the numbers is being driven by the number of rejected applicants, with 81 per cent of student visa requests being granted in the past six months.

This is down from 86 per cent of applicants being approved in 2022-23, 91.5 per cent in 2021-22 and 89.9 per cent in the pre-Covid year of 2018-19.

A Department of Home Affairs spokeswoman said visa approvals needed to be “balanced against upholding the integrity of the student visa program”.

“The department has seen increasing levels of integrity concerns across the student visa program,” she said.

“The department received higher levels of fraudulent documents, fraud related to English language testing, non-genuine claims and non-genuine subsequent marriages being presented in student visa applications.

“The department will refuse a visa application to non-genuine applicants who do not meet regulatory requirements and where fraud is present.”

Education Minister Jason Clare said Labor was committed to improving the standing of the nation’s higher education sector and combating exploitation.

“The Albanese government’s migration strategy and the other integrity measures we’ve put in place send a clear message that we will act to prevent the exploitation of students and protect Australia’s reputation as a high-quality international education provider,” he said.

A global push is under way to limit student migration, with Canada seeking to curb its numbers by announcing a two-year cap on foreign students that will cut numbers by 35 per cent, and Britain barring foreign students from bringing dependants.

Migration expert and former immigration department official Abul Rizvi said the decline in student visa approvals reflected a bid from the government to lower net migration and ease the pressure on infrastructure and the housing market.

“The reason I think the government is targeting students right now is to get net migration down to a more sustainable level,” he said. “And in our history, whenever net migration has hit or approached around 300,000, problems have occurred in terms of congestion, inadequate infrastructure and housing, but also many government services start to strain at that level of net migration.

“And of course last year, we hit over 500,000, which is the highest in our history and not surprisingly, all of those things are under strain as a result.”

Mr Rizvi said the Australian, Canadian and British governments’ different approaches to bringing down student numbers were all poorly designed, arguing that the Albanese government’s strategy of upping refusals wasted resources. “Australia’s approach has been to crank refusal rates,” he said. “I personally think all three countries have got it wrong; they’re just doing it badly.

“Not letting dependants come is poor practice, student visa capping in an arbitrary way and it’s also chaotic … and Australia’s approach is subjective refusal rates.

“That’s not very good either, it’s just a waste of resources.”

Opposition immigration spokesman Dan Tehan has accused Labor of pursuing a “Big Australia policy” and allowing a record intake of international students to help “drive overseas migration to a record 518,000 people as Australians endured housing shortages, rent hikes, and a cost-of-living crisis exacerbated by population growth”.

“Labor says they’re not running a Big Australia policy but they also said they would deliver the stage 3 tax cuts,” he said.

The rate of visas being granted to international students in the university education sector alone dropped to 82.5 per cent since July, from 87.5 per cent in 2022-23 and 96 per cent in 2021-22.

In the past six months 98,198 student visas have been granted for study in the higher education sector showing a trend downwards from 2022-23 when 261,317 visas were granted through the course of the year, the highest in more than a decade.

While the rate of overseas Chinese university students being granted visas offshore remained steady at about 97 per cent, grant rates for offshore higher education students from India, Australia’s second-biggest market, dropped from 74.2 per cent in 2022-23 to 60.8 per cent this financial year. Grant rates for the third-biggest market, Nepal, went from 65.2 per cent to 48.8 per cent in the same period.


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Bear77
Added 11 months ago

Feeding links to articles in paywalled sites through the following website often works @Rick

https://12ft.io/

...although a few newspapers have adapted - not sure if it works for the Australian. Worth a try.

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edgescape
Added 11 months ago

Public library would be the best place to access The Australian for free.

Always ways around the murdoch paywalls if you are determined not to give the murdochs your money...

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