IDP Education Limited

Company Overview: IDP Education Limited (ASX: IEL) is engaged in the placement of international students into educational institutions in Australia, the UK, the USA, Canada, New Zealand, and Ireland. The company’s services include counselling, application processing and pre-departure guidance. It is also involved in the distribution and administration of International English Language Testing System (IELTS) tests. IDP is a co-owner of IELTS with the British Council and Cambridge Assessment.

IEL Details

Strong Volume Growth in IELTS to Aid Future Business Prospects: The company’s ongoing program of innovation cements its leadership position in the industry. IEL’s unique combination of digital and physical solutions is supporting its competitive advantage in a growing industry with supportive regulatory and policy settings. In addition, the strong volume growth in IELTS and Northern Hemisphere study destinations showcases resilient structural demand. During 1HFY22, total student placement volumes rose by 33% as well as growing demand for Northern Hemisphere countries generated a rise of 63% in multi-destination student placement volumes. The company has invested in long-term growth and also expecting the benefits of the same via increased demand for its services. Looking forward, IELTS Online would be the next step for the business in improving the test taker experience around the world.

Insights of 1HFY22: The company is currently operating 37 computer-delivered centres in 21 cities and 74 paper-based test locations. In addition, it has expanded its footprint in India through the acquisition of BC IELTS. The company’s business model strength, impactful innovation, and an attractive policy landscape had delivered a strong rebound of results, evident by revenue growth of 47% over pcp.

Financial Summary (Source: Analysis by Kalkine Group)

Change in Holdings: Recently, the Capital Group Companies, Inc., and its related bodies corporate have made a change to holdings in the company with a voting power of 7.36% against the previous voting power of 6.07%.

Top 10 Shareholders: The top 10 shareholders together form around ~27.40% of the total shareholding, while the top 4 constitute the maximum holding. Bennelong Australian Equity Partners Pty. Ltd. and Capital Research Global Investors. are holding a maximum stake in the company at ~10.35% and ~7.36%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a net margin of 12.8% as compared to 11.3%x in 1HFY21. In addition, ROE for the period stood at 12.2% against 7.6% in 1HFY21.

Margin and ROE Profile (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Risk: The company’s performance could be affected by the uncertainties in relation to the COVID-19 pandemic.
• Regulatory Risk: IEL is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.
• Competition from Peers: The company operates in a very competitive environment; hence rising market share of peers could impact the business growth.

Outlook: The company is investing for future growth, evident by increasing overheads following a disciplined cost control. The strong desire to study abroad amid positive regulatory changes may support the business growth in the future. IEL believes that Canada is showing continued popularity, boosted by an attractive post-study work landscape. In addition, the company is optimistic that Government policy in key operative destinations may attract international students and migrants. This indicates the strong upwards trends of IELTS testing volumes across the markets. IEL added 54 computer-delivered test centres in 1HFY22, which include 14 via Indian acquisition. This indicates the company’s focus on the IELTS strategy, which may drive strong growth and product innovation.

IELTS Strategy (Source: Analysis by Kalkine Group)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of IEL is trading below its 52-week low-high average of $20.170 - $40.260, respectively. The stock has been corrected by ~14.21% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ median, P/E multiple, considering the rising demand for its services and expanded footprints etc. For the purpose of valuation, a few peers like G8 Education Ltd (ASX: GEM), 3P Learning Ltd (ASX: 3PL), and iCollege Ltd (ASX: ICT) have been considered. Considering the expected upside in valuation, rising revenue and NPAT, expanded footprints, synergies from the recent acquisition, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $28.000, down by ~0.815% as on 11 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

IEL Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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