Company Overview: IDP Education Limited (ASX: IEL) is involved in the placement of international students into educational institutions in Australia, the UK, the USA, Canada, New Zealand, and Ireland. IEL provides various services, which include counselling, application processing and pre-departure guidance. In addition, the company operates English language schools in Vietnam and Cambodia, as well as digital marketing and event services. The company started trading on ASX in November 2015.

IEL Details

This report is an updated version of the report published on 30 May 2022 at ~3:26 PM GMT

Prudent Investments Approach to Support Future Business Prospect: The company’s scale and trusted human connections are at the heart of its competitive advantage. IEL’s technology roadmap would drive both near-term and longer-term benefits. The company is currently making investments for future growth, as evident by rising overhead costs per month averaged to $22 million in 1HFY22 against $16 million in 1HFY21. During 1HFY22, IEL experienced strong IELTS volume growth in most countries with Indian acquisition boosting growth to 79% over pcp. Moreover, IELTS average price declined by 7% on a constant currency. The company believes that its innovation is laying the foundations for a longer-term transformation of the international student recruitment industry. In addition, a strong desire to study abroad amid positive regulatory changes may back the long-term business growth.

Insights of 1HFY22: The following picture gives an overview of the company’s operational and financial performance in 1HFY22:

Operational Summary (Source: Analysis by Kalkine Group)

Financial Summary (Source: Analysis by Kalkine Group)

Retirement of CEO & MD: As announced on 11 May 2022, the Chief Executive Officer and Managing Director, Mr Andrew Barkla, will retire from his current role in September 2022.

Segmental Highlights: The below picture provides an idea of segmental performance in 1HFY22:

Top 10 Shareholders: The top 10 shareholders together form ~27.35% 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 an EBITDA margin of 24.7% as compared to 23.8% in 1HFY21. In addition, ROE for the period stood at 12.2% against 7.6% in 1HFY21.

Margin Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk: Any major change in immigration policies may impact the company’s growth as it generates a substantial amount of revenue from placing international students in educational institutions.
• Geopolitical Tension: Political events and tension, unfavourable press, negative international relations, and other international events may decrease the attractiveness of destination countries for students.
• Competition from Peers: The company’s operational performance could be affected by the rising market share of peers in the industry.

Outlook: Looking forward, the company’s strategy revolves around computer-delivered growth, wherein it added 54 computer-delivered test centres, including 14 via Indian acquisition. The Indian acquisition of integrated British Council’s IELTS operations to aid future growth. In addition, it is focused on platform modernization and expanding its product portfolio. The company’s near-term launch includes IELTS Online, which would improve the test-taker experience around the world. The Australian volume growth would be backed by the rise in search interest for Australia and relaxed border and post-study work extension. Moreover, IEL is focused on investments in key markets to drive long-term business growth.

Stock Recommendation: 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 $21.350 - $40.260, respectively. The stock has been corrected by ~9.19% in the past month. 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, considering the positive market cues and focus on business expansion 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, expanded footprints, growing top line and bottom line, recent Indian acquisition, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $24.080, as on 30 May 2022, 11:10 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 for 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 stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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.

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