IDP Education Ltd (ASX: IEL) is an education organisation that operates internationally, offering student placements in Australia, New Zealand, the US, UK, Ireland and Canada.
Their services involve assistance to choose and find courses, find health cover and complete visa applications.
Although they have been operating for 50 years, they only listed on the ASX in 2015 and have since averaged a three-year return of 51.9% per annum.
Highlights from 1H19
- Revenue increased 26% to $304 million
- EBITDA increased 33% to $66.8 million
- NPATA increased 32% to $41.8 million
- Interim dividend increased 41% to 12 cents per share
- English Language Testing was up 18%, with 660,000 tests
So, the two reasons I like them?
IDP provides a number of services and operates in several countries. They don’t limit themselves to the Australian market, instead having offices in 31 countries and offering placements across six different nations.
IDP earns their money from the institutions that they place students with. If they were focussed solely on Australia, then any disruption that caused international tension or political change could pose a risk to the number of students they are able to place.
For example, Australia is host to many Chinese students who come here to complete undergraduate or postgraduate degrees. While this has been a growth sector, there has actually been higher growth in demand for the UK from Chinese students. IDP has positioned itself to be a major player in both markets.
IDP are also part-owners of the English language test known as IELTS. This testing provides more than half of the company’s revenue and is another protection against political changes or trends that could see fewer students studying abroad.
I think it’s important for companies to have multiple streams of revenue and some form of protection against political change, particularly in an international environment.
2. Growth with Low Debt
Despite the fact that IDP has already been operating for 50 years, they are still able to maintain a growth rate not matched by many other companies.
As mentioned, revenue increased by 26% in 1H19. On top of this, IDP maintains a return on equity above 50%.
This growth has been achieved while avoiding large amounts of debt. IDP currently has a debt to equity ratio of 63.1% and an interest cover of 36.9x.
If they can maintain these growth rates, it is a very attractive investment.
IDP is a company that will definitely go on my watchlist, but I don’t think I’d be prepared to buy shares just yet. The share price currently sits close to $15, having been at less than $9 in November 2018. Although it’s an attractive company, I always prefer to wait for an attractive price before purchasing.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in IDP Education Ltd.