IDP Education: Interim result 2016

Seek may be regretting selling off its 50% stake in IDP Education in November. The stock is now 49% above the $2.65 issue price and up 21% from our enthusiastic review, IDP Education's ultimate test.

IDP reported its first interim result to its new shareholders recently. Revenue rose 25% to $182m and net profit rose 23% to $20m. Despite management noting that there would be a slight seasonal bias to the first half, the result already puts the company on track to soundly beat its $36m profit forecast for the 2016 financial year.

All numbers headed in the right direction. IDP's major division, English Testing, produced an 18% lift in revenue on a 6% lift in volumes, price increases and currency movements. In Student Placement, its second division, the new multi-destination strategy produced a 121% lift in revenue.

While multi-destination remains smaller than the Student Placement business in Australia, this is a stellar increase. It looks like sourcing students for non-Australian universities could overtake its Australian business very quickly. Asia delivered the growth, with that region producing a 45% increase in revenue across all businesses.

The main problem now is that IDP has quickly become too expensive. This is a good business, yes, but it's trading on a price-earnings ratio of 26. While the tailwinds should deliver growth, there's little margin of safety at this price.

We were expecting IDP might beat its prospectus forecasts and had factored that into our $3.00 buy price. We'll hope for a setback at some stage although, if you're a shareholder, this is a quality business you shouldn't let go of easily. HOLD.

Disclosure: The author owns shares in Seek.