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.

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.

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.

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-

UBS is forecasting EDP Education’s profits to increase from $162 million in FY24 to $312 million in FY28, almost doubling over the next 4 years.

Tristan Harrison from The Motley Fool shared UBS forecasts in his article published on Friday 12 April 2024 (see story below).

Top broker tips one of the ASX 200's worst performers of the past year to surge 50%

“In this article, I'll look at why UBS sees an opportunity with the IDP Education share price and how much it thinks profit can grow.

Potential headwinds 

UBS acknowledged that changes in government policies in Canada — such as a tightening of spousal visas — created uncertainty for the education provider in FY24 and FY25. 

We have previously covered some of the other issues in Canada, which the ECP Growth Companies Fund investment team explaining as follows:

IDP Education underperformed as the Canadian government opened up its SDS immigration visa requirements to 4 new English language tests, increasing competition for IDP's IELTS [International English Language Testing System] business.

It is uncertain how much market share IELTS could lose over the next few years, however market estimates point to an 8% to 15% EPS impact.

UBS also pointed to UK news that suggests a "potential tightening of study work rights." 

In Australia, we've just heard that international student fees are going to increase, according to reporting by the Australian Financial Review. This comes after new measures were announced to stop non-genuine students.

UBS said these countries were "targeting the problem of non-genuine students". However, the broker thinks IDP's competitors are more exposed to these changes, which could result in some offsetting market share benefits for IDP, or potential "consolidation". 

The broker noted that the UK could implement further changes, though there has already been a tightening of restrictions on students' ability to bring in independents. 

Any tightening announcement should be the "last major piece of negative regulatory news", though any US changes could "impact the growth angle".

Despite these headwinds, UBS thinks the ASX 200 stock may generate net profit after tax (NPAT) of $162 million in FY24, $179 million in FY25 and $226 million in FY26.

Ongoing profit growth?

The broker has forecasted that the IDP Education net profit could continue to grow in FY27, with NPAT of $271 million, and then reach $312 million in FY28.

Based on UBS' profit estimates, the IDP Education share price is valued at 28x FY24's estimated earnings, 26x FY25's estimated earnings, 20x FY26's estimated earnings, 17x FY27's estimated earnings and 15x FY28's estimated earnings.

Despite the challenges IDP Education is facing, it's pleasing to see the business predicted to see steadily growing profit, which is usually a very supportive driver of pushing the share price higher.

According to the projections, the dividend could also increase each year between FY24 and FY28, but I'm not going to focus on that because the IDP Education share price performance could be the key factor in total shareholder returns.

IDP Education share price target

UBS currently has a share price target of $25.30 on the company. A price target tells us where the broker thinks the share price will be in 12 months. 

At the current IDP Education share price, the price target implies it could rise 54%. That would be a big return – even half that would probably outperform the ASX share market quite nicely.”

-ENDS-

Held IRL (8.6%), SM (16%)

Here is my thesis for IDP Education in pictures. All tongue in cheek of course! :)

If this chart…

Plus this chart…

Equal this…

And if this is what really happens…

then this could be the result…

But, there’s always the distinct possibility it could turn out more like this…

or this…

You can’t take this stuff too seriously!

Disc: Held and adding

There’s always a time lag on Shortman.com.au, so the current chart does not show further capitulation on the CFO announcement (24/03/2024). My guess is that the short positions have moved even higher than the 3 year chart below, which shows 13.3% of the stock shorted on the 21/03/2024.

IDP Education has moved to take 3rd position on the most shorted stocks on the ASX. It could get worse than this.

The only reason these punters would be taking out short positions is to make a profit. They make a profit by buying back their short positions at a lower price. So the punters are thinking the share price will go lower still. Of course technical analysts are the shorters best friends. I don’t think you’d find a single chartist who would be calling IDP Education a buy at the moment. It would be a huge AVOID / SELL! Chartist say the market is driven by sentiment and charts, not fundamentals.

I think the chartists are absolutely right…short term! If you are short term investor you should heed what the shorters and the technical analysts are saying/doing, and head for the hills!

However, for a time horizon investor we are trying to look past the short term headwinds (one year is short term for me) and share price volatility, into the future of the business (2 years plus).

Benjamin Graham said “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” For long horizon investors shorters are our “best friends”. When Polynovo was trading under $1.00, David Williams (the Chairman) said shorters are our “best friends”. I didn’t quite understand what he was saying at the time, but I get it now.

So if shorters are your “best friends”, chartists are your second best friends because they help to perpetuate the downward share price cycle and leading it to capitulation. It’s not great if you own it!

We shouldn’t ignore our “best friends” though. They influence the market by destroying sentiment and they appear to be “right” for a long time. It’s extremely risky betting against these guys with a short term horizon in mind. However, if you have a long term fundamental point of view (two years plus), shorters and chartists are indeed your “best friends”. Why? Because they convince the market to do irrational things and serve you up “once in a lifetime” bargains. Although, taking up these bargains is an extremely lonely place to be. No one else is doing it which is precisely why you are getting a bargain.

So don’t expect anyone to back your call. You’re all alone here! Of course your long term fundamental thesis needs to be right, or things will turn very sour, both in the short term and the long term.

So we must listen to what the our “best friends” are saying, watch the charts and try to pick an entry point that delivers the least amount of pain as possible. A point where the downside starts to appear limited. That’s easier said than done. It’s not a great feeling arriving too early only to see the stock go down another 20% to 30%.

Matt Joass has some really great thoughts about this in his article on The Hidden Power of Inflexion Points

Adding to the UBS share price target of $25.30 shared by @Jimmy today, I’ve included consensus views from 15 analysts supplied by Simply Wall Street. Share price targets have been tracked against the current share price for the last 2 years in the chart below.

Source: Simply Wall Street

The first thing that strikes me about this chart is how the 12 month price target follows the share price down. It doesn’t give you a lot of confidence in the target if the share price tracks down even further.

The other concern is the low level of agreement amongst analysts on the 12 month share price target with a dispersion of 15%. The highest price target is $29.47 and the lowest is $17.00. The consensus share price target is $23.84.

If the most bearish of the 15 analysts turned out to be correct and we bought IDP Education shares today at 3 year lows of $17.18, we would be down 1% in 12 months time. If we included 40 cps in dividends (77% franked, 53 cps gross), we would be up 2% on our investment in 12 months time. That’s not a great outcome, but if that’s the down side I’d be happy to cop that.

If the upside is analyst consensus of $23.84 we could be up over 40% in 12 months time, including the dividends.

Of course all 15 analysts could turn out to be wrong, and the shorters might be correct. During the COVID 19 pandemic IDP Education fell to a low of $10.89, so it’s possible for the share price to fall even further.

However, all these opinions are based on a 12 month horizon, and I’m more interested in how IDP Education will be performing in 2 to 3 years from now.

Source: Simply Wall Street

It seems shorters of IDP Education (IEL) are looking for any excuse to put further downward pressure on the share price.

Today, IEL announced the appointment of Kate Koch to replace Murray Walton who is stepping down at the end of this week (31st March, 2024).

Kate comes with excellent experience and credentials, previously holding CFO roles at SEEK, RMIT, Tesco and Peason (London). Kate seems like a perfect fit for the role with her experience in the education and technology sectors.

The only issue is there is a 6 month delay between Murray Walton finishing in the role and Kate commencing with IEL (by October 2024). In the interim period the CFO responsibilities will be shared by the Finance Leadership Team, other members of the Global Leadership team and the CEO.

I don’t see this as a problem, but the shorters are having a field day using it as an excuse to drive the share price down another 4% in this mornings trade.

Short positions are now the highest on record with 12.85% of the stock now shorted (Shortman.com.au, 15/03/24).

For patient investors with a long time horizon (2 to 3 years), I think IEL is a tremendous buying opportunity at today’s prices. At least I am excited by the opportunity and have filled up my shopping trolley this morning. Now I just need to be patient for a few years!

Held IRL (7.9%), SM (13%)

Kate Koch to join IDP Education as Chief Financial Officer

Following an extensive global search, IDP Education Limited (ASX:IEL) is pleased to announce that Kate Koch has been appointed to the role of Chief Financial Officer.

Kate is an accomplished senior finance executive with broad international experience, including in the education and technology sectors. Kate will join IDP from SEEK Limited where she has held the role of CFO since June 2021.

Prior to SEEK, Kate was CFO at RMIT University and held senior finance leadership roles at Tesco Plc and Pearson Plc in London. Through these experiences, she developed a deep understanding of the needs of international students and educational institutions, as well as leading global teams, including large shared services functions. Kate’s extensive and well-rounded experience supports a successful transition to IDP.

Tennealle O’Shannessy said “The IDP Board is delighted to have Kate join the team. Her commitment to purpose driven organisations and her passion for developing people align fully with IDP’s values. We feel fortunate to have identified someone with Kate’s unique experience of our industry, outstanding financial and commercial skills, as well as her exposure to complex international operating environments. Her appetite for creating transformative experiences for customers using technology has shone through.”

Kate’s appointment follows Murray Walton’s decision to step down from the CFO role, effective 31 March 2024, as was previously announced in December 2023. Kate will join IDP’s Global Leadership Team and report to Tennealle O’Shannessy. Kate will commence with IDP by October 2024. In the interim period between 1 April 2024 and Kate commencing with IDP, the CFO responsibilities will be shared by the Finance Leadership Team, other members of the Global Leadership team and our CEO.

-ENDS-

IDP Education is the 5th most shorted stock on the ASX with short positions on 10% of its shares. Today, following a good 1H24 result, there might be some nervousness amongst the short sellers which is helping to fuel the higher share price (up 10% at time of writing). Sometimes higher prices lead to higher prices, and we could see a short squeeze on IEL shares. It will be interesting to see how this plays out.

Source: Shortman.com.au https://www.shortman.com.au/stock?q=IEL

IDP Education (IEL) has just released a solid result for 1H24.

• Record revenue of $579 million, up 15 per cent on H1 FY23, driven by strong student placement revenue growth of 44 per cent.

• Adjusted earnings before interest and tax (EBIT)ii of $159 million, up 25 per cent and adjusted Net Profit After Tax (NPAT) of $107 million, up 23 per cent, demonstrating strong operating leverage in the business model.

• Record student placement volumes of 57,300, up 33 per cent.

• English language testing (IELTS) volumes of 902,000, down 12 per cent.

• English language teaching volumes of 51,600 courses, up 15 per cent.

At this stage IEL are tracking ahead of analyst expectations with NPAT of $97.4 million ($107 million adjusted) and consensus of $173 million for FY24. However I am expecting the changes in Canada to make the second half a little tougher.

Management said “ the decrease in IELTS volumes of 12 per cent was due entirely to lower volumes in India, partially offset by increased volumes in other high-growth markets. The decline in Indian volumes was due to weaker industry conditions, increased competition and lower repeat testing rates for Canada.

The weaker industry conditions reflect a period in which international student demand was impacted by a decline in sentiment towards Canada, rule changes for student and dependent visas in the UK and an increase in visa rejection rates for Australia.

“Outside of India, IDP recorded IELTS volume growth of 17 per cent. This performance reflects IDP’s diversified global testing network which spans 87 countries and includes key growth markets for English-language testing. Our focus for English Language Testing continues to be on strategic investment in network expansion, multi-modal delivery, and product innovation,” Ms O’Shannessy said.

Quote ends.

Hopefully the market will react positively today. I’ve been accumulating IEL in IRL and on SM. I accept that in the short term there are a few headwinds facing this business, but I think the headwinds are short term and I am very bullish for continued growth in the long term. Will continue to add IRL on weakness.

A quick overview for now ahead of the market opening, but I’m expecting the market will be reasonably happy with the result today.

Held IRL (4%), SM (15%)

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)

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%)