Pinned straw:
Solvetheriddle
@mikebrisy @Rick @RhinoInvestor
gents, interested in your views on the budget re the student housing proposal. at first, i thought it would be positive to give some framework around the path forward. then i thought that putting the onus on universities to arrange building accommodation would slow the intake process, or potentially worse. the is a student housing industry which were, understandably quite excited, appear to be keen to build. the devil will be in the details I suspect. does it put too much of a squeeze on the foreign student business case would be the bear thesis. rationally the government would want to kill the golden goose, but Labor has a history of fumbling policy. too soon to judge?
i note citi/GS which look like prime brokers are increasing holdings so the shorters are still keen on this one.
i did also note Airlie is keen on the long story, of my old competitors i would take some notice of what they think.
all the best
RhinoInvestor
Certainly some crazy early share price action today.
@mikebrisy or others, do you know whether accomodation is included in the commissions that IDP earns on student placements. I can see from the latest annual report that they average AUD$4459 per placement. Presumably if the total amount spent by the student with the institution increases (i.e. using University owned accomodation rather than some grubby student share house) then it stands to reason that this would have a positive impact on the fees earnt over time if the university has extra accomodation to include in the package.
This morning’s bump seems to be attributed to the review of the UK graduate route leaving terms unchanged is the culprit. In summary, this means that students can stay and work in the UK for up to two years after completing their degree.
For me, lots of further evidence that while there are political things going on in most jurisdictions, as a long term hold most of these short term fluctuations should fall by the wayside.
Solvetheriddle
@RhinoInvestor @mikebrisy Thanks guys, the above government paper looks positive LT but there could be a few bumps ST. Controlling growth, cleaning up shoddy operators/practices etc. To me, the government rhetoric appears to be very supportive of the existence and success of the industry. Recent numbers appear to have gone a bit over the top, as Mike's numbers show, and poor practices are in evidence. it is hard to believe that IEL will not only be a survivor but probably stronger in time. The ST risks I see to IEL are they currently over-earnings either due to the industry growing too strongly or they are engaged in unsustainable practices (hopefully unlikely). both imply over earning and the graph below may indicate some over earning. industry over-earnings are likely to be forgiven much more easily than any dodgy practices. A reversal, to some extent, back to the trend growth would not surprise and is what the market may be waiting for. C19 blurs the picture a bit and I have been playing around with segmentals trying to get a better bead on this but is difficult given the C19 event.
still of view its an opportunity--held
mikebrisy
@Solvetheriddle I agree with your assessment. Overall, I think the market has gotten used to reading through pandemic distortions. The bits above and below trend even each other out.
Looking at the brokers views for FY24, 25 and 26, they still have a rosey outlook. I've added the consensus for FY24, and put dots for low and high broker views, and also added the consensus views for FY25 and FY26.
The brokers have been in a downgrade cycle for over a year. Even so, a healthy gap has opened up to the market view with broker consensus now +34% on valuation to the market.
In late 2021 and early 2022 the market couldn't see through to the post-pandemic recovery - but the brokers did.
My reading of the situation is that we could see a positive surprise in FY24, but that the chickens come home to roost in FY25 as well see a full year effect of government measures in Australia and Canada.
In GS's latest note, they've come in at a FC EPS for FY24 of $0.63 (down from $0.65) and in FY25 of $0.67 (down from $0.72) and in FY26 $0.77 (down from $0.85).
I'm citing them because, like me, there see this all washing through over two years, and they've called FY25 as "Expect peak industry headwinds".
Overall, I think this is another case of the market over-reacting to bad news.
It will be fascinating to see how this plays out. (genuinely curious to see how these posts age, even if its more than an academic curiosity!)
mikebrisy
Here's a couple of charts to quantify things. You can see the Government slow down starting to bite from Nov-2023. This slow down into this year, is what the market has already been dirgesting over the last few months (via the $IEL SP).
There is a lag effect between the Visa Grant date (Figure 2) and the Arrival date (Fig 1).
Figure 1: Student Visa Arrivals
Figure 2
Importantly, you can see just how huge 2022-23 was by comparion to 2019-20.
The distortion of 2022-2023 or CY2023 (depending on how you cut the numbers) is really impacting the narrative. If your baseline is a standout, crazy year with pent up demand from lockdowns etc., you can write some scarey headlines. But if you go back to a baseline of 2019-2020, I expect the government will be re-assuring the sector that they are committed to sustainable growth. Education is the biggest export sector in NSW and Vic, after all.
Now the government is being smart and taking the opportunity to do a few things:
- Increasing English language requirements (as a part time tertiary educator ... I believe this is a good thing)
- Proposing profiles for each institution, according to the value of their programs as well as their ability to invest in student housing (complex, not sure how manageable this will be, smacks of BIG Government)
- Encouraging placements in regional centres
- Reducing work hours, to clamp down on people using study as a pretence to come and work here
- Increasing savings requirements, to reduce the numbers of student likely to work illegally to support themselves (will reduce accessibiltiy for many)
- Increasing Visa fees
Having scanned the consultaiton paper briefly this morning, there is a lot in it that makes sense.
Importantly, it arguably makes the application process more risky and complex. While this will frighten a proportion of prospective students off to other markets, it will potentially increase the value to student of $IEL's placement services. It will make the cost of the placement services proportionately a lower share of the student's wallet. It may even create opportunities for $IEL to enhance its services, and adapt them to the tougher entry requirement. Not only might this create opportunities to increase average revenue per customer, it could allow $IEL to continue to differentiate itself from competitors and accelerate taking market share.
In summary, I think this is a classic case where first order thinking can make you see doom and gloom. But the more I read and learn, the more I see opportunity here for $IEL.
In any event, the industry isn't going to roll over and take this lying down. And the government won't want to hurt this sector.
Politically, I think there will be a win-win-win.
Win 1: The current "go slow" on visa grants is going to reduce the headline number. So, come election time, the government will be able to say "we reduced student immigration by x%" simply by pitching their narrative against the crazy baseline of the 2022-23 blowout.
Win 2: The enhanced controls, which the industry will tey to fine tune, will reduce the number of fake students, and shape the intake towards serving the national interest (in theory).
Win 3 (($IEL's win): the more complex and challening environment, will create increased opportunities for $IEL to develop its services and capabilities and drive revenue per student, and importantly, allow it to accelerate taking market share.
There's nothing I'm reading that gives me conern here.
Disc: Held in RL and SM
mikebrisy
Yes, interesting developments. No doubt more negative pressure on SP - although a lot is baked in already.
That said, some control was needed. The Australian reported at the weekend that Uni Sydney has issued 15,000 places to international students this year, compared with 8,000 last year. Those numbers aren’t sustainable. They also very significantly exceed the long term growth trend for the sector on which an investment thesis for $IDP relies.
Looks like as part of this the government is putting pressure on Unis to build more student housing, including for domestic students. That’s a good thing.
But it is also political, with the goverment want to be seen to do something on housing, ahead of the election.
The go-slow on visa approvals has already started to bite (since second half last year). You can see it clearly in the goverment stats.
Over the medium term, this will all normalise. Education is a comparative advantage for Australia and a big contributor to the economy.
I have one more tranche yet to put on $IDP. But I am going to hold off until this has clearly bottomed. Which clearly it hasn’t.