Treasure Chest: IDP Education

This story features IDP EDUCATION LIMITED. For more info SHARE ANALYSIS: IEL

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

By Danielle Ecuyer

Whose Idea Is It?

Jarden

The subject:

Jarden has reiterated its Overweight rating on IDP Education ((IEL)) signaling earnings are close or at the bottom of a downgrade cycle.

More info:

IDP Education is a global operator, providing a wide range of services for international students including placement services, English language testing, visa application assistance, as well as adjacent and ancillary services for international students.

Although earnings rebounded from the travel restrictions and pandemic impacts, post covid has brought forth new challenges from politics to changing regulatory/competitive backdrops, with governments in both Canada and Australia targeting study visa permits.

Macquarie points to the Canadian government which expects permits to decline by -10% in 2025 versus 2024 and subsequently remain flat in 2026. 

Compared to IDP’s forecast of FY25 industry placement volumes to fall by between -20% to -25% year-on-year, made up of Canada down around -28% and Australia falling -19%; the broker believes the announcement from the Canadian government suggests a normalisation of the regulatory environment.

While the announcements of amended student policies in Canada and Australia have alleviated some of the risks for the company, election outcome risks remain in the US, Australia and Canada. 

Nevertheless, IDP’s competitive advantage in securing market share during more challenging macro conditions has been highlighted by multiple brokers.

Morgan Stanley considers the FY24 results as a case in point. IDP advanced student placement volumes by 17% in FY24 against a market decline of -13%. 

Jarden makes similar observations. This broker’s regression analysis infers IDP gains market shares when visa volumes contract, with the reverse occurring when visa volumes expand; it is then the company loses market share.

The sensitivity analysis concludes IDP’s market share could rise by 1.8% when volumes shrink around -10%, which boosts volumes by circa 9% and thereby offsetting the industry dynamics.

Macquarie explains the quality of the services, particularly visa procurement, product innovation and specific exposure to student cohorts are all attributable factors for the company’s resilience in more challenged trading conditions. 

Jarden also highlights the company has higher visa approval rates compared to the industry average. 

Looking at the student mix, Jarden’s research suggests this factor has had a minimal impact on FY24 student placement volumes. IDP is “over-indexed” to Indian students at around 52% of total Indian student placements versus the global market volume at 32%.

In contrast, the company is under weighted to Chinese students at around 11% of volumes versus the global market at circa 20% volumes.

Morgan Stanley identifies the company’s shift to a “go-to-market”  China strategy as an under-rated opportunity. With a potential total addressable market of $380m, direct access to China’s International English Language Testing Systems is expected to diversify and grow revenues for IDP in FY26/FY27.

On balance, brokers seem to agree FY25 might shape up as an earnings trough for IDP with the company well positioned for a recovery in FY26/FY27 as regulatory settings unwind.

Jarden believes there are upside risks to its forecast decline in Australian student volumes of -10% in FY25 and with consensus assuming -15% with similar factors, such as market share gains, coming into play.

Both Jarden and Morgan Stanley have reiterated their Overweight ratings (equivalent of Buy) with respective target prices of $19.60 and $21.50, upgraded from $19.20 on Sept 12, 2024. Macquarie is Neutral rated with a $16 target price.

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