IDP Education: Surely, It Cannot Get Any Worse?

This story features IDP EDUCATION LIMITED, and other companies. For more info SHARE ANALYSIS: IEL

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

This week’s profit warning confirmed IDP Education truly is swimming against the global tide, but could the bottom be in sight for this once popular high flier?

-Post this week’s shellacking, shares in IDP Education have lost -91% since 2021
-Global visa and immigration policy uncertainty weighs on company’s prospects
-Some analysts prepared to see the bottom in sight
-Company still seen holding competitive advantage longer-term

By Mark Woodruff 

IDP Education ((IEL)), a global provider of international student placement services and English language testing, has issued a good old fashioned nasty profit warning, citing ongoing policy uncertainty in key destination markets. According to company management, too much confusion is materially reducing the numbers of international students looking to study in countries like Australia, Canada and the UK.

FY25 Student Placement (SP) volumes are now expected to decline between -28-30% and International English Language Testing System (IELTS) volumes by -18-20% from FY24, with strong average fee growth expected to partially offset the revenue impact.

This week’s profit warning was preceded by a disappointing half yearly result release in late February.

The market’s punishment has been stark, with IDP Education’s share price losing more than half their value in a few days only. Those losses come on top of what already looked like every investor’s worst nightmare as the share had peaked above $40 in 2021. This week’s shellacking has pushed those shares to just above $3.50.

Goes without saying, industry conditions have been tough for this once popular high flier on the ASX, as the tightening of student visa and immigration policies has constrained demand for its broad suite of services, which span placement and English language testing to visa assistance and ancillary support for international students.

If ever there has been a case of operating in the wrong place at the wrong time, surely this must be it?

In the UK, sentiment has weakened further following the release of the Immigration Policy White Paper, which points to additional restrictions ahead. In Australia and Canada, restrictive post-election policies remain in place, with further changes still pending.

Management highlighted a sharp deterioration in student demand in Canada, attributing the decline to “ongoing policy volatility”.

Sentiment in the US continues to weaken too, with the broader environment for international students becoming progressively less supportive.

IDP co-owns the IELTS English language exam and delivers testing globally, reinforcing its leadership in high-stakes English assessment, which may determine eligibility for university admission, professional certification, employment, or migration.

Following the exit of co-owner Seek ((SEK)), IDP Education shares listed on the ASX in November 2015 at $2.65. Since then, the company has expanded globally and digitally with the share price reaching a peak of $40.21 in 2021.

Broker views

Following a disastrous 2025 thus far, Jarden has limited conviction in its EPS forecasts for IDP given poor visibility over industry volumes, migration policy, and management’s ability to navigate these challenges.

By contrast, Macquarie sees negative impacts as a cyclical rather than a structural shift, noting the UK has begun to see an uptick in student visa applications following the July 2024 election.

This analyst expects cost initiatives by management in response to lower volumes, which could include test centre rationalisation and lowering of headcount, while still providing scope for a leaner business when volume recovers.

Also in the positive camp, UBS stresses the company remains a high-quality business and suggests the current operating environment is nearing trough conditions.

Upcoming potential catalysts include government approval for IELTS in China and potential upside from a tender resulting from the UK Home Office overhaul of its Secure English Language Testing (SELT) regime.

Gearing levels are not at risk, the valuation does not appear expensive, and UBS argues a large degree of negativity is already incorporated into the share price. Morgans agrees on gearing, expecting second half net debt will be broadly similar to $196m at the end of the first half.

Less positively, Morgan Stanley feels near-term catalysts for a re-rating are limited despite the share price sell-off capturing significant downside risk.

Morgans believes the company can hold a similar level of earnings to FY25, however this will require meaningful cost out (the broker assumes -$20m) and a contribution from China IELTS.

This broker assesses IDP has a competitive advantage over the longer-term in both major divisions; market share opportunity in Student Placement in particular; and the ability to utilise scale to invest in technology/product development.

FY25 and FY26 guidance downgrades

When FY25 reporting comes around, management expects between $115-125m of adjusted earnings (EBIT), missing the prior forecasts of consensus and Macquarie by -28% and -30%, respectively.

This broker points to low visibility on volumes, ongoing pricing trends, and likely cost-out.

Thankfully, pricing continues to be strong, exhibiting around low-teens growth within Student Placement, and some volume insulation is being provided from non-academic testing within IELTS, explains the analyst.

New second half earnings guidance of circa $27m missed quasi guidance set in February of greater than $77m.

For English-language testing, Ord Minnett was assuming a flat outcome year-on-year versus the latest guidance which equates to a -10-14% fall, while the broker’s estimate for student placement volumes was for an -11% year-on-year decline against a slump of between -28-30%.

Potential remedies

Management will implement cost, productivity, and reduced investment measures in FY26 to offset anticipated ongoing industry volume pressures into FY26.

Some cost control has already been implemented, with adjusted overheads for the second half now expected to be -5% below the prior period when previously guidance was for a flat outcome.

Macquarie identifies three key drivers heading into FY26: volumes, which remain difficult to forecast, though sentiment in Canada and Australia may improve post-election, while the UK and US are expected to stay weak; pricing, which should remain above trend; and overheads are likely to come under greater scrutiny amid volume pressure.

The broker, which retains an Overweight rating, stays constructive, and believes IDP can generate double-digit growth over the long term. While near-term trading is challenged by restrictive policy and negative rhetoric in key student markets, Macquarie expects these headwinds to cycle out by FY26.

Morgan Stanley outlines several key uncertainties the market is expected to debate, including the extent to which the soft May to June placement pipeline may weigh on FY26 volumes and whether management can continue to deliver pricing strength to offset further volume weakness.

This analysts also question management’s ability to recalibrate the FY26 cost base while preserving operational flexibility to capture any potential recovery.

Equally important will be the scale and timing of any broader rebound beyond FY26, Morgan Stanley suggests, which remains difficult to forecast.

The outlook

Citing limited catalysts for a share price re-rating, Morgan Stanley moves to a PE-based valuation for IDP Education as uncertainty on timing or magnitude of a potential recovery means the stock price is unlikely to trade up to the broker’s long-term discounted cashflow (DCF) valuation.

The trading update created ratings pandemonium among the five daily covered brokers in the FNArena database, to say nothing of the average target price fall to $5.55 from $14.74.

This new level suggests around 56.80% upside to the $3.54 closing share price on June 5.

Morgans, Morgans Stanley, and Ord Minnett all downgraded their rating to Hold (or equivalent) from Buy, while UBS upgraded to Buy from Hold. Macquarie remained at Outperform.

Outside of daily coverage Jarden lowered its target to $6.95 from $17.35 and downgraded to Neutral from Overweight.

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