IDP Education crushes short sellers with strong first-half result, shares up 12%

IDP Education (ASX: IEL) might be crushing short sellers on Wednesday after reporting a much stronger-than-expected first-half FY24 result.

IDP Education is the fourth most shorted stock on the ASX with 9.59% of its outstanding shares being sold short.

The stock rallied 15.3% as the market opened but gave back almost half of those gains by 10:18 am AEDT, up just 8.6%.

First-half FY24 – Key Numbers

• Record revenue of $579 million, up 15% driven by strong student placement revenue growth of 44%

• Adjusted EBIT of $159 million, up 25%

• Adjusted net profit after tax of $107 million, up 23%

• Record student placement volumes of 57,300, up 33%

• English language testing (IELTS) volumes of 902,000, down 12%

• English language teaching volumes of 51,600 courses, up 15%

The revenue, EBIT and net profit figures were in-line with Goldman Sachs estimates but a respective 3%, 11% and 13% beat against consensus expectations.

Key Takeaways

Growth was very strong relative to peers – IEL's student placement business "significantly outperformed" the market, with total volume growth of 33% compared to the broader industry, where volumes were down slightly year-on-year due to tighter visa settings in key markets.

English language testing volumes drags – Management noted the decrease in IELTS volumes of 12% was due entirely to lower volumes in India amid weaker industry conditions and increase competition.

Sentiment and regulation – "The weaker industry conditions reflect a period in which international student demand was impacted by a decline in sentiment towards Canada, rule changes for student and dependent visas in the UK and an increase in visa rejection rates for Australia," the company said in a statement.

Goldman's Take

"We expect investors to react positively to IEL’s 1H24 result. IEL’s strong performance in student placement, through a period where aggregate student visa volumes are already softening, should in our view begin to build the case for market share to drive continued student placement growth despite regulatory tightening," the analysts said in a note this morning.

A Buy rating was retained with a $27.60 target price.

Volatile Price Action

IEL experienced a volatile gap and fade in early trade.

• Open: +15.3% to $23.33

• Session low: +8.6% to $21.99

• Current: +10.8% to $22.42 as at 11:30 am AEDT

IDP Education intraday chart on Wednesday, 14 February (Source: TradingView)

There are a lot of moving pieces to this result, which might explain the choppy open. Some pieces to consider include:

• The result was above consensus estimates and warrants a strong open

• Goldman Sachs was impressed by the numbers

• The overall student placement and language testing market is slowing and there's growing concerns around increasing competition in IELTS, particularly in India

• IEL is the fourth most shorted stock on the ASX but today's price action does not suggest a massive wave of short covering (if it was, IEL shares would have opened high and pushing even higher)

• The S&P 500 and Nasdaq both fell more than 1% overnight after hotter-than-expected inflation data. IEL's price action could be very different if we had a strong lead from Wall Street