Forum Topics IEL IEL History of IDP Education

Pinned straw:

Last edited a month ago

I found this story below about the history of IDP Education (IEL) fascinating. It was covered by Julie Hare from the AFR in June 2023.

After reading this story I felt like the headwinds IDP Education is currently facing, including the temporary international student and spousal visa caps in Canada, Australia and UK, and opening up the International English Language Testing Scheme (IELTS) to competition in Canada will be viewed in future years as a temporary ‘blip’ in the history of a growing global business.

The future of IDP Education is swinging more toward international student placements where they have significant pricing power in a huge total addressable market (TAM), as this chart from the 1H24 Investor presentation shows. IDP Education student placement volumes in the US are only 1% of the total potential market.

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The slide below shows how quickly IDP Education is transitioning toward student placements where they have more pricing power and higher margins. EBIT for student placements was up 43% in twelve months and now surpasses IELTS as the major source of EBIT.

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And now to the history of IDP Education…

How this company created its own multibillion dollar industry

IDP Education has one of the most peculiar origin stories of listed companies, creating from scratch a world-first industry that is now Australia’s third-largest export sector.

The first-ever student recruitment agency has surfed a tidal wave of demand for study in English-speaking destinations. Six million people now travel to another country to study.

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The groundbreaking company was also integral to the introduction of the world’s first English-language proficiency test but, according to its new chief executive officer Tennealle O’Shannessy has never, in its 44-year history, veered from its central mission: connecting people to a transformative future.

“It’s important to understand where IDP has come from. This is an organisation that is driven by purpose and a clear set of value that permeates through the culture and the team. That’s why it has been able to achieve so much over so many years,” says O’Shannessy, who has been at the helm of IDP since February.

“It’s been 50 years of building trusted relationships with student and institutions. That is the core of our business.”

In The Australian Financial Review’s Fast Global list, IDP Education has the largest offshore revenues in 2022 of $754.8 million. Its success reflects a diversification strategy that began in 2009 and continues to this day.

The strength of the company can be seen through its figures during the pandemic. With borders closed and students learning from home, IDP still reached $428 million in offshore revenue in 2021, down from $529.7 million in 2020.

IDP Education has a provenance unlike any other company in the ASX 200.

Its beginnings were humble, emerging in 1969 as a government scheme to link Australia’s universities research with Asia and as a soft diplomatic power. Throughout the 1950s and 1960s, students had been coming here to study under the scholarship-based Colombo Plan. Others arrived as private students.

However, in 1986, the forward-thinking Hawke government saw a new source of potential revenue for universities in educating the children of middle-class families in South-East Asia.

IDP – or the International Development Program – already had an office in Jakarta and in 1986 it introduced a counselling service to recruit students to Australian universities.

Over the next few years, it opened new offices and by 1997 had a presence in the Philippines, Singapore, Thailand, Malaysia, Taiwan, China, India, Vietnam and Mauritius.

As numbers increased, it became evident that a test was required to determine and verify the English-language skills of prospective students. In 1989, the groundbreaking IELTS – International English Language Testing System – was launched in partnership with the British Council and Cambridge University.

By 1996, the Hawke government passed ownership of IDP to Australia’s 38 universities and a corporate structure was created.

Australia was the world leader in commercialising education to international students. While wealthy families had for centuries sent their children across the globe to be educated at the world’s finest institutions – think Oxford, Cambridge, the Ivy League – Australia was the first country to see the economic possibilities of a university degree from an English-speaking country.

By 2006, numbers were booming and the 38 university shareholders came to the realisation that they did not have the necessary skill sets to run it efficiently and profitably.

So in 2005 it went looking for a corporate partner that could take it to the next level.

Brothers Andrew and Paul Bassat were riding high with their online jobs board seek.com and were on the lookout for adjacencies to their core product. Universities, they figured, was a way of connecting education and employment and improving the value chain of seek.

In 2006, they paid $36 million for its 50 per cent stake in IDP with the 38 universities retaining the other 50 per cent.

In 2007, Peter Polson was named chairman of the board, a position he still holds.

Two years later, IDP embarked on what, at the time, was a controversial and counterintuitive strategy – to recruit students to universities in countries that were competitor nations to Australia. It started with the US and now includes New Zealand, UK, Ireland and Canada. It now has more than 190 offices in 35 countries.

The next step in the company’s evolution was to list on the Australian Securities Exchange in 2015, which saw the end of seek’s involvement and the recruitment of a new chief executive, Andrew Barkla.

Barkla pushed a diversity agenda, with the company extending IELTS operations to new markets, oversaw the acquisition of aligned companies and the development of a new and sophisticated online platform.

IDP is now the world’s largest student recruitment company, which has in the past few years fortified its capabilities by developing sophisticated digital platforms. It has a 600-strong campus near Chennai in India that is dedicated to building IDP’s technical and digital innovations.

Its newest offering is called FastLane, which promises to get students an offer from an institution in seconds.

“We are focused on reducing the time in bringing offers to students earlier on in the process,” says O’Shannessy.

“The decision to study overseas and embark on an international education and possible migration is an incredibly high stakes decision for students. There is a lot of uncertainty in the process. With FastLane we aim to bring certainty more quickly around the offer process.”

In Australia alone, IDP recruits about 30 per cent of the half million or more students who come here each year.

It’s a company that has, in its many guises, been characterised by big bold visionary moves.

And yet, says O’Shannessy, it never lost sight of the need to be “deeply connected to our customer needs”.

-ENDS-

mikebrisy
a month ago

@Rick great article - I wasn't aware of all those details of the history.

I agree entirely that the restrictions we are seeing in Australia and Canada "will be viewed in future years as a temporary ‘blip’ in the history of a growing global business." $IEL ticks so many boxes for me, high returns, capital light, global market leader, in a global market forecast to grow annually at 7-8% for the next decade.

I'm actually grateful to the Canadian and Australian governments, and the shorters - they've handed me the opportunity to build a position in a company which for years I couldn't because the SP was always above my valuation. Now I'm in with a little more still to buy and with a position that's well in the red.

$IEL is my FY24 version of what $RMD was in FY23. I am learning yet again that the opportunity to buy true, quality companies that are otherwise well-understood by the market, is when a plausible bear thesis has traction. So many of the talking heads are crying "sell sell" and, as a contrarian, that is music to my ears. Its time like this - where perhaps there might be some short term underperformance (... totally unproven at this stage, I have to add ...) that the time horizon play really delivers.

For interest, I've included below an extract from a market research study by HolonIQ published in 2022 on the outlook for the internataional student market.

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Source: HolonIQ Feb 2022

Disc: Held in RL (and still accumulating)

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@Rick @mikebrisy thanks for that. i see the shorters are still active in substantials on this one. the issue is probably short term, there is much uncertainty on the near term earnings and shorters love a highly valued stock with uncertainty over near term numbers. there is also the fact that the CEo is new and im not completely convinced about pedigree. how she interprets volatile data is unknown, could end up being too conservative as well which would be bullish. if IEL comes out with more bad news the share price will get whacked again regardless of long term value, share prices can be pushed around a lot and get momentum, eg RMD. i did buy RMd and the case is probably similar here.

All things considered I agree with you guys and it is now in my buy zone as well.

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RhinoInvestor
a month ago

#Management ...

Interesting to see the new CEO's previous track record in charge of Adore Beauty ...

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Hopefully she can do better with IDP's stock price.

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@RhinoInvestor fair call rhino, but Adore was floated at the peak of online hype at a huge valuation. the founder was also very much involved (and cashed in) how much you can blame the CEO is disputable. i can imagine some tension between the owner and CEO at that point. Adore was reasonably well run from what i can tell, but investors were stitched up. so there is enough there for some caution, but few people are willing to stand up to an owner who is so clearly incented to sell, it may be a courageous decision on the part of the CEO as Sir Humphrey would say.--ive done it and it didnt end well so cant completely blame her

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mikebrisy
a month ago

@RhinoInvestor agreed that $ABY was something of a train wreck. I guess the allure of taking on an ASX-listed CEO-ship was too much for an ambitious executive. She certainly didn't hang around for long! (So in that respect she was smart.)

However, I think $IEL is less dependent on the brilliance or otherwise of just the CEO. There is strength and depth in the management team. There was a big renewing of the Executive in 2017, many of whom are still in place today. Its now over a year since Tennealle has taken over, and if her appointment was going to rattle the leadership group, we'd maybe have seen it already.

Certainly, performance is tracking nicely. The area to focus on is the student placements growth @Rick highlighted in his straw. The evidence, as I read it, is that while the internation student sector was hit hard during the pandemic, if anything, $IEL strenghtened its market position and offering and has come out strongly in the re-opening. Many of the weaker competitors in the field didn't have quite the base to build on.

But returning to the Executive Team, which is the point of this post, the only significant change was the resignation of Murray Walton, but that looks like a well-earned retirement. He started work in 1972 when we went to university in NZ, 52 years ago, which proabably makes him around 70 today He hasn't update his LinkedIn Account since leaving $IEL, but doesn't appear to have taken on another position, nor has he gone down the NED route.

His replacement, Kate Koch, left Seek.com as CFO, and prior to Seek she was CFO at RMIT, giving her a good understanding of the education sector. She'll have also worked closely with Tennealle when she was part of the leadership at Seek. (Tennealle progressed up the management ranks at Seek.) She looks like a very good appointment, and a low risk external hire because she will be previously known to the CEO, and has relevant sector experience.

On continuity, we've also seen Warwick Freeland in charge of Strategy and Business Development since 2008- a pretty key role for the CEO to have at her side. Albeit, he too will be getting soon to the point where retirement may be his next step.

So, overall, I am pretty comfortable with the management team at $IEL. It is a supporting part of my thesis. They appear to have navigated CEO and CFO succession as well as shareholders could hope.

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