Australia | Feb 14 2022
This story features IDP EDUCATION LIMITED. For more info SHARE ANALYSIS: IEL
The long-awaited opening of Australian borders to international students should see a spike in IDP Education’s performance according to the company, but the path to recovery may be longer than guided despite underlying growth drivers.
-Australian student placements expected to accelerate as borders open
-Key region placements outside Australian saw strong first half recovery
-Alongside anticipated placement momentum, a number of drivers underpin a growth outlook
By Danielle Austin
Market sentiment is that IDP Education ((IEL)) is set to benefit from an uplift in Australian student placements as the nation opens its borders to international students in the second half, although the timeline to recovery remains unclear.
The company reported positive momentum in group student placement revenue growth, up 33% in the first half, and has suggested Australian placement volumes could return to pre-covid levels in the second half. IDP Education’s Australian student placements peaked at around 30,000 in 2019, offering a substantial runway for the company to build back to, but despite border openings some market analysts expect the company will not undergo meaningful recovery in student numbers until FY23.
Given Australia is one of IDP’s biggest destinations, the company would benefit from placement volume recovery, but a return to pre-covid levels implies no recompense for any placements deferred over the last two years.
While Australian placement recovery is still in its early stages, regions outside Australia are further down the track given earlier market reopenings. Canada, another key region for the company, showed strong recovery in the first half with student placement volumes up 71% on the previous comparable period, while multi-destination student placements also delivered growth of 63%. Notably, multi-destination placement volumes were 15% higher than pre-covid levels in the first half of FY20 and exceeded the company’s pre-covid peak of 27,400.
Estimates for IDP ’s first half earnings ranging from $57-99m were evidence of uncertainty in the market, but the company missed the top end of forecasts and delivered earnings of $80.7m while profit grew 73% over the previous comparable period. Despite metrics demonstrating IDP Education is on the path to recovery, market analysts have warned that comparison to pre-covid levels may not offer a balanced view of the company’s performance with skews yet to normalise. Jarden in particular noted multi-destination student placement volumes appear to skew 55% to the first half in FY22, compared to a 70% first half skew pre-covid, driven partially by Canada visa delays.
Growth outlook underliers
While volumes suggest benefits ahead for IDP, company growth is being underpinned by a number of other drivers. Revenue from International English Language Testing System (IELTS) grew 34% organically in the half, and 50% including accretion from the British Council’s India IELTS operations acquisition, was a key driver of group revenue.
An accelerated student pipeline also supports multi-year outlooks. Northern hemisphere applications were up 50% in the first half and qualified leads up 59%. Further, not only is IDP benefiting from higher commissions on student placements compared to pre-covid, although student placement margins improved to 82% from 78% year on year, pre-covid margins were above 85%, offering further upside potential.
The company has also continued its digital and technology investment, progressing the IDP Live application. The app already has 27 universities on board, and the company continues to target 60 onboard universities by the end of 2022. The app allows universities to source quality students more efficiently and confirms IDP Education’s place as a leader in the student placement market. Commentary from the company also indicated education technology (ed-tech) capabilities would be assessed for acquisition potential.
Of the five brokers in FNArena’s coverage who reported on the company’s first half results, four remain Buy rated or equivalent, with only Morgans issuing a Hold rating, with a consensus price of $36.80. Morgans notes long-term growth should be supported by a number of underlying factors, including structural demand, market share gains and client retention, but finds the stock susceptible to short-term volatility. Morgans downgraded its earnings per share forecast -2.5%.
Morgan Stanley, with the highest target price of $40.20, finds the company best placed compared to competitors to capture further market share gains and predicts the company will benefit from significant gains compared to pre-covid market share, with the company’s strong balance sheet providing access to capital. Morgan Stanley increases earnings per share forecasts 0.4%, 0.2% and 0.3% through to FY24.
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