IDP Education: Interim result 2018

In our review of IDP Education's float back in IDP Education's ultimate test, we said it was ‘hard to imagine a company with more favourable tailwinds'. Well the winds blew with gale force strength in the first half of 2018, with IELTS testing and overseas student placement volumes jumping 28% and 46% respectively.

As a result, the company's revenues and underlying net profit surged 28% and 31% respectively. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 38% to $50.3m, which means a full-year figure of more than $90m looks likely, much higher than market expectations. EBITDA will have almost tripled between 2013 and 2018 in that case.

IELTS testing volumes bounced back in India this half, but even elsewhere IDP recorded double-digit volume growth in most markets. The first computer-based IELTS test was launched in Melbourne in December and an Australian rollout over the remainder of 2018 should help IDP compete against the Pearson Test of English which has taken significant market share in Australia.

While student placement volumes to Australian universities grew by a relatively subdued 9%, good results elsewhere – including Canada up 142% – drove strong revenue growth. There remains significant potential from IDP's ‘multi-destination' strategy and international revenue is likely to exceed Australian revenue in short order.

IDP has blown expectations out of the water, as great businesses frequently do. With earnings now much higher than expected, our price guide is too conservative. We're lifting our Buy price to $5.00, which represents a 2018 forecast PER of 24, to reflect the business quality. Our maximum portfolio weighting also moves up to 6%, while the Sell price rises to $9.00 to allow for potential strong growth.

There's likely to be a setback at some stage, so we'll have to hope IDP presents an opportunity later on. For now, HOLD.