Pinned straw:
Having returned home from a 6 week holiday from retirement (it’s a tough gig you know! ;) it’s time to get back to work on our portfolio! It was nice to take a total break from the share market for 9 days while we sailed from Japan to Alaska with no internet! A highlight of the trip which will remain etched in our memories was a beautiful encounter we had with two grizzly bears grazing contently on the fresh spring shoots close to a trail near Eagle River about an hour north of Anchorage. They seemed to be not at all concerned about our close proximity as a small group of hikers watched on quietly. I was hoping we would see a grizzly in the wild. Sometimes you need to be careful what you wish for! :) Here’s a short clip https://vimeo.com/947532816
Sorry about the diversion…it’s time to get back to work!
Thanks @mikebrisy, @Solvetheriddle and @RhinoInvestor for your coverage following IDP Education’s (IDP) Regulatory and Market Update. I agree with almost everything discussed so far.
I was expecting FY24 and FY25 earnings to come in slightly higher than FY23 but analysts are now expecting earnings to decline marginally each year out to FY25 before starting to improve again from FY26. I think there’s a lot of guess work involved in trying to forecast IDP’s earnings over the next three years with the international student visa caps in play in Australia, Canada and the UK.
What’s more important now is to have a longer term view (5 to 10 years) on IDP’s future. Is IDP a growth company, a cyclical business, or a business in structural decline?
Looking at an historical chart of revenue and earnings over the past 10 years (2013 to 2023) apart from a dip during the calendar years 2020 and 2021, earnings per share have grown, on average, at 20% per year. The two year dip in earnings was not cyclical, it was due to COVID 19 travel restrictions, a Black Swan event for the business.
Source: Simply Wall Street
IDP bounced back surprisingly quickly after the travel restrictions were lifted as international students returned to universities in gusto. Due to a pent up demand for an international education earnings over the next two years (FY21 to FY23) grew over 370% from 14 cps to 53 cps and quickly returning to the earnings trajectory path that existed prior to COVID 19.
Over the past decade IDP has clearly been a consistent growth company with management navigating the business through a significant Black Swan event as if it never happened.
So what’s happening to IDP now? Is IDP becoming a cyclical business, or is it in structural decline? I think neither. What IDP is facing now is the second Black Swan event within four years. This time the Black Swan event is a housing crisis in Australia, Canada and the UK resulting in governments introducing temporary international student visa caps to make more homes available for residents until the housing crisis is fixed.
Meanwhile, the student demand for an international education is stronger than ever. Universties are more than ready to meet this demand and IDP is well placed as the global market leader in facilitating these student placements. The business model is structurally sound and has the capacity to continue double digit earnings growth for at least a decade if the temporary visa caps were lifted.
How long will it take to fix the housing crisis and for governments to lift the international visa caps? Who knows? It could take years? This is the risk in owning IDP Education right now. Structurally the business model is strong and resilient. Who would have foreseen this business encountering two significant Black Swan events within four years.
If the market were to close for five years and I could only choose one stock to invest in, I think I would choose IDP Education. My thesis is, the housing crisis will be resolved within 5 years, international student visa caps will be lifted and IDP Education will be back on track with consistent double digit earnings growth and shares trading above $30.
Held IRL (8.8%), SM (17.2%) and nibbling on weakness.
Welcome back @Rick - sounds like a great trip.
I think your straw sums up my sentiment. Like you, I was expecting FY24 to be stronger than will turn out, but I was expecting FY25 to be the bad year.
I'm still very solid on $IEL for the long term, as long as they manage well through this macro trough. I hope they take efficiencies in overheads, and more established markets, but keep pushing into the US, for example.
If I have a personal lesson to learn (again) it is that I built my position too quickly into known bad news. Now would be the time to get started, and I think I could have phased in from here. The root cause of my error was a belief in my own market analysis, and an expectation that there would be a stronger than expected FY24 result and that this would lead to a strong SP rebound towards consensus. I wanted to be on the right side of that, so I went early.
In digesting the recent news, the consensus for 12m PT has come down from around $20.75 to around $18.50 - a solid -11%, but still well north of where we are today.
But these are all details when you take a longer term view, as you say. So, I have about a final 20-25% to complete my intended position, and I will await the FY24 result and commentary before putting this one in the bottom drawer too. I still have a strong conviction that this will turn out to be a good investment in the medium to long term.
The desire for talented people from all over the world to gain an international education experience is huge. Personal evidence: I spent three days last week teaching operations and supply chain management to a class of 25 high potential middle managers from a major Chinese corporation here in QLD. And just last week, my own daughter submitted her application for a semester exchange program in the UK, while my UK-based godson is coming to the end of his first degree in CA, USA. There is a vast population of people in middle income countries who want a piece of that action, and a host of leading universities that want their $ to fund research and subsidise domestic students. The big picture couldn't be clearer.
Good to see you back @Rick. I agree with your conviction and managed to top up IRL with two small parcels over the last couple of days at $14.80 and $14.42 (I will need to check they are added to Strawman but I think on both days the price closed higher). It’s pretty volatile at the moment so I’m in the market to top up further in the next couple of months by selling some PUT options. I also managed to sell some July covered calls @$20 for on my initial parcel (dipped my toe in thanks to the Strawman conversation) and made about 20c per share which I think is roughly 7.5% annualised. The longest dated call option at the moment is March 2025 which is yielding around 4.5% for the $18.50 call (which equates to about 20% capital growth).
Not everyone’s strategy but I’ve been dabbling with trying to get a bit of extra yield on my portfolio with covered calls. This strategy is usually to supplement dividends, but presumably IDP is likely to pare back on the dividends over the next little period as well like they did to get through COVID which I would think is wise especially as they are probably reducing their workforce (which is what they indicated on the call) and hopefully doubling down on penetrating new markets (eg. USA).
