According to the firm, the long-awaited opening of Australian borders to overseas students should boost IDP Education’s performance, although the route to recovery may be slower than anticipated, notwithstanding underlying growth drivers.
According to market expectations, IDP Education Limited (IEL) would profit from an increase in Australian student placements when the country opens its doors to overseas students in the second half, while the timing for recovery remains unclear.
The company recorded excellent traction in group student placement revenue growth in the first half, up 33 per cent, and has projected that Australian placement volumes could return to pre-covid levels in the second half.
IDP Education’s Australian student placements peaked at roughly 30,000 in 2019, providing a significant runway for the company to rebuild on, although, despite border openings, some market experts believe the company will not experience a major rebound in student numbers until FY23.
Considering that Australia is one of IDP’s most important destinations, the company would gain from a return to pre-covid levels, but this implies no compensation for any placements postponed during the last two years. While the Australian placement recovery is still in its early stages, other regions are further forward due to earlier market reopening.
Canada being another important market for the company, experienced a robust comeback in the first half, with training and placement volumes increasing by 71% over the preceding reference period, while multi-destination student placements increased by 63%.
Furthermore, multi-destination placement volumes in the first half of FY20 were 15% higher than pre-covid levels and eclipsed the company’s pre-covid peak of 27,400.
Forecasts for IDP’s first-half earnings ranged from $57-99 million, indicating market uncertainty, however, the business missed the high end of forecasts and posted earnings of $80.7 million, while profit increased by 73 per cent over the previous similar period.
Although data indicates that IDP Education is on the mend, market experts have warned that comparing to pre-covid levels may not provide a balanced perspective of the company’s performance due to distorts that have yet to settle.
Multi-destination student placement volumes appear to be skewing 55 per cent to the first half of FY22, compared to a 70 per cent skew pre-covid, which was exacerbated in part by Canada visa delays. While volume suggests that IDP will profit in the future, the company’s expansion is being supported by a number of other factors.
International English Language Testing System (IELTS) revenue increased by 34% organically in the first half, and by 50% incorporating accretion from the British Council’s India IELTS operations acquisition and was a primary driver of consolidated revenues.
A faster student pipeline also helps to support multi-year plans. Northern hemisphere applications increased by 50% in the first half, while qualifying leads increased by 59%.
Furthermore, while student placement margins expanded to 82 per cent from 78 per cent year on year, pre-covid margins were above 85 per cent, providing additional upside potential. The corporation has also continued to invest in digital and technology, with the IDP Live application advancing.
The app already has 27 institutions on board, and the company’s goal is to have 60 universities on board by the end of 2022. The software enables colleges to find quality students and reaffirms IDP Education’s position as a market leader in student placement more efficiently.
The corporation also stated that education technology (ed-tech) skills would be evaluated for acquisition potential. Four of the five brokers in FNArena’s coverage who commented on the company’s first-half results are still Buy rated or comparable, with Morgan Stanley offering a Hold rating and a median price of $36.80.
Morgans believes that long-term growth will be supported by a number of underlying fundamentals, including structural demand, market share increases, and customer retention, but that the stock will be volatile in the medium term. Morgans cut their earnings per share outlook by -2.5 per cent.
Morgan Stanley, with the largest target price of $40.20, believes the company is best positioned to capitalize on further market share gains compared to competitors and speculates the company will benefit from substantial improvement compared to pre-covid market share, with the company’s strong balance sheet providing access to capital.
Morgan Stanley raises its earnings-per-share expectations by 0.4 per cent, 0.2 per cent, and 0.3 per cent through fiscal year 24.
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