IDP Education: A $60 million short squeeze but shares still down massively
IDP Education surged 35% after beating low expectations and unveiling $25 million cost cuts, squeezing shorts for $60 million.
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Mentioned
KEY POINTS
- IDP Education shares surged 35% after delivering results that marginally beat heavily downgraded forecasts despite student placement volumes falling 29%.
- The company announced an aggressive $25 million cost reduction programme for FY26, almost 80% more than consensus expectations of $14 million in savings.
- High short interest of 14.2% amplified the rally, costing short sellers approximately $60 million, though the stock remains down 52% year-to-date.
IDP Education (ASX: IEL) shares rocketed 35% on Thursday after the embattled international education services provider delivered a better-than-feared FY25 result and outlined aggressive cost-cutting measures to weather ongoing market headwinds.
With short interest at 14.2%, the sharp rally has cost short sellers approximately $60 million. However, the single-day gain provides little relief for long-term shareholders, with IDP still down 52% year-to-date and down 85% from November 2021 highs.
IDP Education short interest chart (Source: Shortman)
Mixed FY25 results
IDP's full-year performance reflected the challenging operating environment that has gripped international education markets, but key metrics came in slightly ahead of heavily downgraded forecasts:
Revenue down 14% to $882.2m vs. $864.2m est (2.1% beat)
Underlying EBIT down 54% to $119.0m vs. $117.8m est (1.0% beat)
Adjusted NPAT down 55% to $64.7m vs. $68.3m est (5.3% miss)
Full-year dividend of 14 cps
The operational picture showed the full extent of market pressures, with student placement volumes down 29% year-on-year and language testing volumes falling 18%. However, IDP managed to partially offset volume declines through pricing power, lifting average student placement prices by 15% and language testing fees 5%.
Cost cutting was also front and centre, with direct costs down 6% and overheads falling 5%.
FY26 guidance tops expectations
Despite planning for continued market weakness, IDP's adjusted EBIT guidance for FY26 was $115-125 million or a 4.7% beat at the midpoint against consensus expectations of $114.6 million.
The guidance assumes another tough year ahead, with market volumes expected to decline 20-30% from already depressed FY25 levels.
Aggressive cost reduction programme
Another driver of today's upside was IDP's transformation programme, designed to strip $25 million from the cost base in FY26. This is almost 80% more than consensus expectations of around $14 million in savings.
This cost reduction, weighted toward the second half of FY26, should drive operating expenses down to approximately $338 million from $352 million in FY25, according to E&P analyst Entcho Raykovski.
Market positioning
The dramatic one-day rally follows a brutal one-day selloff in early June, where the stock plummeted 48% on an unexpected earnings downgrade. IDP warned of a 28-30% decline in student placement volumes, an 18-20% drop in language testing volumes, and FY25 EBIT guidance of $115-125 million or a 25% miss vs. market expectations.
A sharp selloff in the lead up to results, alongside soaring short interest and peak pessimism may have set the stage for a strong rebound.
Looking ahead
While Thursday's rally provides some short-term relief, IDP faces a challenging path back to previous earnings levels. Most analysts expect FY26 to represent the trough for student placements and English language testing, with earnings beginning to recover in FY27, albeit still below the record levels achieved in FY23-24
On this basis, most analysts remain bullish on IDP. Macquarie (Jun-25) maintains an Outperform rating with a $6.40 target price, noting that "long-term, IDP can deliver double-digit growth, though current trading is impacted by negative rhetoric and anti-student immigration policy settings in key markets, which should cycle through by FY26."
