Australian Equities Blended Portfolio
We have initiated a new position in IDP Education (IEL) in the Australian Equities Blended Portfolio. IEL is a global leader in the tertiary student placement market and owner and administrator of the International English Language Testing System (IELTS) tests. IEL is positioned as a quality growth stock, with double-digit EPS growth underpinned by the structural demand for global education, which has been driven by a return of high migration levels.
The company has a long track record of delivering strong earnings growth with a 10-year compounded annual growth rate (CAGR) in revenue and EBIT at 16% and 22%, respectively, supported by balance sheet flexibility with 0.15x Net debt to EBITDA whilst delivering ongoing shareholder returns with increasing dividends (FY23 DPS +52% on pcp).
For the fiscal year 2023, IEL’s student placement volumes rose 53% to a record level of 84,600, and the segment gross margin rose to 85.5%, up by 60 basis points. The management team referenced longer term industry growth trends of 7% for student placement with an addressable market of 1.8 million students.
Despite facing increasing competition in the English language test and a loss of market share to Pearson PTE, IEL’s IELTS examination segment (constituting 56% of total revenue) delivered a 13% growth rate in gross profit in FY23, achieving a 48% gross margin – a noteworthy 300 basis points improvement from FY22. The consistent 10% CAGR in IELTS volumes over the past 16 years underscores the segment’s resilience and growth.
In 2023, factors such as India-Canada diplomatic tensions, Australian student visa changes, and increasing competitive dynamics in English language testing have weighed on IEL’s share price (-26% in 2023). We believe these factors have been largely reflected in the share price, with IEL trading at a 1.6x PEG ratio and -27% discount to its long-term P/E ratio.