Why IDP Education (ASX:IEL) Shares Are Being Thumped

IDP Education Ltd (ASX: IEL) shares were down almost 20% following the release of their full-year result but have recovered somewhat.

What does IDP do?

IDP is an education organisation that operates internationally, offering student placements in Australia, New Zealand, the US, UK, Ireland and Canada. This involves assistance for students to choose and find courses, find suitable health cover and complete visa applications. IDP has more than 100 offices in 31 countries and 550 counselors.

The International English Language Testing System, or IELTS, is an international standardised test of English language proficiency for non-native English language speakers. IDP is the co-owner of IELTS. More than 3 million IELTS tests were undertaken around the world in 2018.

Ouch… Was The Result Really That Bad?

With the IDP share price down heavily one would expect the result wasn’t so good. On the contrary, IDP reported a record financial performance with these impressive numbers:

  • 23% growth in revenue of $598 million
  • 29% growth in EBITDA to $115 million
  • 29% growth in profit to $66.6 million
  • A final dividend of 7.5 cents per share
  • Cash balance of $56 million, but net debt of $4 million

These are strong numbers and even if you strip away the benefit they received from the currency, they recorded 20% revenue growth and 23% profit growth. Cost control saw the EBITDA margin rise from 18% to 20%. Total global english language test volumes were 3.8 million, up 11% on last year.

Simply put, the market expected more…

The profit result was below analyst expectations and the shares were already trading on a hefty multiple. So despite the strong numbers from IDP, the market wanted more. Even if you take into account today’s drop in the share price, IDP shares trade on a trailing price-earnings multiple of 60 times.

Are IDP Education Shares A BUY?

The number of IELTS tests has grown at 11% per annum for the past 10 years and I believe this growth should continue. With strong growth, a good balance sheet and a management team that are delivering, I think IDP is a high-quality business and one that I would like to own (again) at the right price. For me, the ideal buying price is a little lower than where it currently is and for now, I will be keeping a close eye on it.

Disclosure: At the time of writing David does not have a financial interest in any of the companies mentioned.

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