IDP Education: Stock Surge and IELTS Acquisition in India

IDP Education: From $4 to $38 and the Fine Print on Profits

IDP Education has multiplied by nine the money of those who bought at AUD 4. The company trades on the Australian Securities Exchange (ASX: IEL) and is dedicated to something as segarro as placing international students and managing the IELTS English exam. Since its IPO in 2015, it has maintained a ROE of 50%, near-zero debt, and annual growth exceeding 10%. With these fundamentals, the journey has taken the share price from $4 in 2016 to $38 at its recent all-time highs. The business is good. The price is another matter.

What IDP Education Does and Where Its Revenue Comes From

The activity combines two mutually reinforcing pillars. On one hand, it places students in foreign universities—Australia, New Zealand, the UK, or Canada—and charges for this service. On the other, it manages the IELTS exam, the English test many of these students need for admission. In September 2017, the company announced that IELTS reached three million exams per year.

The business does not float in a vacuum. International student education is Australia's third-largest export, behind only iron ore and coal. Geographic expansion is explicit: Lebanon, via Netcom Systems; the Philippines; and China, where the acquisition of HCP expanded its reach. The company also insists on supporting the student beyond the paperwork, from initial advice to finding internships and jobs.

Results Sustaining the Rally: Revenue Up 24% and EBITDA Up 30%

In fiscal year 2017, the company reported double-digit EBITDA growth with almost no debt, and the stock closed at AUD 5.30, up 3%. Twelve months later, the scale was different: revenue of AUD 487.2 million compared to AUD 394.2 million the previous year, a 24% increase, and an EBITDA of AUD 89 million, up 30%. In the first half of fiscal year 2019, revenue grew another 26%.

Each earnings release came with a new high. The stock crossed $30 in 2021, surpassed $33, and then $38. Those who entered at $4 and held speak of returns of 800% and 900%, and coming within a step of a ten-bagger in six years. The mantra, repeated relentlessly, was not to sell.

Acquisition of British Council's IELTS Business in India for £130 Million

In July 2021, IDP agreed to acquire the British Council's IELTS business in India for £130 million, a deal giving it direct access to the world's largest source market for students. The argument is demographic: 1.4 billion inhabitants and a middle class eager to study abroad.

Analysts received it well. Goldman Sachs maintained its buy rating and raised the target price to AUD 35, a 24% upside even after previous gains, hinting that the operation might not be the last. In January 2022, the company peine 23 new offices in India, spread across second- and third-tier cities like Warangal, Shimla, Kurukshetra, Trichy, Thrissur, Tirupati, Kakinada, and Goa. The network grew where the students were, not where the capital was.

Why Net Profit Only Grew 4%

There is a data point that clashes with the picture and should not be swept under the rug: in fiscal year 2017, despite the entire expansion narrative being on the table, net profit grew only 4%. At that time, the company had acquired Hotcourses Group, presented as a lever to accelerate growth in 2017-2018, although the material collected does not specify the cause of that 4%.

The discrepancy between double-digit rising revenue and barely moving profit is often the first sustancia ilegal in growth stories. Here, so far, nothing broke: forecasts mentioned in the thread indicated that profit would accelerate in the trinc year. There were also those who, during the climb, confessed they had it on their watchlist and were going to remove it. The practical question—which broker allows buying Australian stocks from Spain—was resolved with a name: DeGiro.

What Do Analysts Expect from IDP Education?

Forecasts published after June 2018 results pointed to profit growth of 21% for the next fiscal year, compared to the 15% average of the previous five years. In figures: moving from AUD 51.5 million to AUD 62.3 million. This type of calculation sustains the valuation and explains why, years later, a target price of $35 still seemed reasonable with the stock already skyrocketed.

The business looks set to keep growing. Demand for studying abroad is inexhaustible, India is a bottomless pit, and the company has demonstrated for years that it knows how to open offices and close deals. That said, at $38 the stock is no longer bought for the business: it is bought for the story, and the story does not drag net profit at the same pace as revenue. If the Indian integration works and exams continue to rise, there will be another leg for the chair. If anything gets stuck, the correction will arrive before the warning.