Criterion: IDP Education's share plunge is a harsh lesson for the overseas student industry
Other listed colleges are tweaking their business models to focus on domestic students
While there's no end of the pain in sight, some brokers reckon IDP Education is a buy at its marked-down valuation
It's not unusual for a small cap stock to decline 50% in value or more in one day.
But when the top 200 stock IDP Education (ASX:IEL) achieved that this week – erasing more than $1 billion of market value – it was a case of 'class, take note'.
The dramatic plunge came after the overseas student wrangler's confession on Tuesday that full-year revenue and earnings would plummet on the back of visa crackdowns.
The stock has lost an astonishing 75% over the last year.
Arguably the downgrade was years in the making, given the quality issues besetting both the tertiary and vocational sectors for some years.
Still, investors were shocked by the scale of the revision or maybe they just hadn't done their homework.
IDP guided to a 28-30% decline in student placement volumes, with its language testing arm likely to fall by 18-20%.
Adjusted earnings before interest and tax (ebit) are expected at $115-125 million, a circa 50% year-on-year decline and well shy of market expectations of $166 million.
Trump-like 'regulation by fiat'
The visa crackdown was contained in a bill that the old Parliament did not pass, but government went ahead via a Trump-style Ministerial Directive (MD107).
The measure means visa applications are processed on the perceived risk of the education provider and the student's country of origin.
Dubbed by college operator Academies Australasia (ASX:AKG) as 'regulation by fiat', the measure compounds the problems of providers with high visa rejection rates.
The reasons for the knock-backs are likely to be beyond the colleges' control.
Nowhere to hide as migration policies bite
IDP's problems don't start and end at home.
Half-owned by sandstone universities, the company started out as a local uni recruiter but now touts for colleges in the UK, Canada and the US. Half of the company's revenue deriving from English language testing and teaching.
The UK is even more zealous on reducing migration, as is Canada given the backdrop of the recent close election.
We'll simply call US a no-go zone, given Trump's order to block Harvard University from admitting international students.
Heeding the lessons
IDP is not the only ASX-listed, overseas student focused education play feeling the pinch.
It's a case of accepting the new reality and adapting.
The amalgam of Icollege and Redhill Education, NextEd Group (ASX:NXD) reported a $2.2 million first half loss, amid a 21% revenue decline (to $47 million).
However Nexted offset some of the impact of a 52% English language services decline with increased international vocation enrolment.
The aforementioned Academies managed to grow half year revenue by 2.8% (to $23.9 million). The company also narrowed a previous $7.5 million loss to a $958,000 deficit.
Operator of the Ikon (tertiary) and ALG (vocational) colleges, EDU Holdings (ASX:EDU) gets a gold star by doubling calendar 2024 revenue to $42 million.
The company also managed a $2.6 million profit after three years of losses.
Gary Burg told last month's AGM the impact of the visa changes remained unclear and the company was focusing on the domestic student market.
A free kick of the 'political football'?
Despite the IDP sell down there's still a country mile between its $1 billion market cap and the circa $20-40 million valuation ascribed to the other providers.
As with all harsh sell-offs, have investors have over-reacted?
Broker UBS contends IDP's business model is unbroken and the company 'remains a high-quality business in challenging conditions'.
The firm rates the stock a 'buy' with a price target of $4.95, implying around 40% of upside.
IDP is undertaking a detailed business review, with an update promised at its August full-year results.
At Academies' AGM last year, acting chairman Chiang Meng Heng decried the sector being turned into a political Sherrin.
'Certain comments being bandied about smack of populism, rather than carefully considered positions that are good for the country,' he said.
'The air may not clear until after the federal election.'
More than a month after the poll, clarity awaits.
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