IEL FY 24 –a few points
There are several of my middling holdings that IMO have strong business quality but are going through some “short-term” issues. Some will go on to strong recoveries, and some will not! Where will IEL stand?
Main points not a full analysis.
1. The result was 3% above my estimates, but uncertainty into FY25 remains very high.
2. From IEL--The total number of international students commencing study in the six key IEL destination markets will decline 20-25% in FY25 compared to FY24. (volumes). That is a very tough market, (this is known). BUT
3. In student placement IEL outperformed the broader market, with the industry being down 13% and IEL volumes +17%. That is an enormous market share outperformance. AND
4. Pricing remains very strong with +10% rise in SP average across the market. Pricing remains a lever IEL appears willing and able to use. That will help offset volume declines.
5. IEL also pointed out significant “one-offs”, 13% of NPAT. If truly one-offs they give some buffer into FY25. A breakdown was given, the most unusual was credit losses due to regulatory barriers on Fx in transferring funds from third parties.
6. Historically IEL has been able to flex its cost base into downturns, and there was rhetoric supporting that in the result. We have a relatively new C suite so execution is key.
7. The second half was weak, but is usually weak for IEL so not much to guide us here. As well as no FY25 guidance from the company.
8. The big one is whether we are at peak negative regulatory policy. If so, we can see IEL bouncing back strongly. As discussed previously, the higher education industry is very important for the countries involved, so as the election cycle passes we may see rhetoric ease. As a leader, IEL is well-placed in this world.
9. The chances, IMO, are that FY25 is the bottom but there could be a few nasties before we hit clear air.
CONCLUSION
Yet to finalise my numbers, I didn’t see a link to the result which would have been particularly helpful for this one for this result. My base case is that IEL is an LT opportunity with timing particularly tricky in the ST given the above
disc HELD
@Solvetheriddle Good summary (I was just starting to write up mine ... but you've saved me the effort. :-)
There was one slide I thought was remarkable is as follows:
My thesis rests on the value and growth of SP, and $IEL industry-leading offering in this area. If the above picture is true, then it is remarkable - particularly when considered with the last slide you posted showing the runway ahead.
Looking at the numbers, $IEL are reaping the benefits of all the new locations opened throught FY23, which delivered their full impact in FY24 AND a contribution from the reduced openings in FY24. Furthermore, they continued to invest in product and systems.
They've taken on some further debt to do this, offset a little by nudging the dividend back, but it supports my hypothesis that they will emerge from this downturn a stronger SP provider with greater market share, beefed up in US/Canada in particular. The former of those two is not subject to any new policy contraints, because Americans understand how vital immigration of talent has been to driving their economy over the decades. Their immigration focus is of a very different nature!
We definitely saw H2 weaken further than normal seasonality, and I expect FY25 will be a tough year as they experience the FY impact of policy settings. However, they have the financial capacity to continue to keep investing (I hope they continue to build out in the US). I am hunkering down, expecting that FY26 will be the recovery year. Hopefully, all major economies will be well into the rate-cutting cycle (hopefully avoiding recessions!) and then there will be an opportunity for policy loosening. There are signs in the UK that this is already happening - and in Australia we'll be past the next election cycle which might count for something on immigration and house prices not being such a hot potato.
The Unis. will also continue to lobby hard on making the economic arguments of the need for a strong tertiary sector. The Aussie "cuts" announced this week aren't as bad as they might have been. The FY23 bounceback was unsustainable, and going back to c. 2019 levels as a baseline is not a disaster. In that context, it is clear that $IEL are growing SP share well above system growth.
You make a good point about the new CEO/CFO pair being untested on corporate cost control. Fingers crossed!
Disc: Held in RL and SM - happy to see how this plays out over the next couple of years.
@Solvetheriddle nice summary.
They have already had a relatively strong rally off the recent lows when they hit 13.25 within the last month during the Japan induced market hiccup. 20% gain in a month is pretty good. The short % has also dropped back a bit. Shortman has a bit of a lag so it will be interesting to see if that changes following these results.
DISC - HELD in SM and IRL and expect to be riding this one for at least a few years.
