IDP Education dives on fears international students will stay away

The country’s largest listed provider of international education services, IDP Education, has raised red flags over potential declines in international student numbers due to restrictive immigration and visa policies in Australia and other key markets.

These changes are expected to significantly impact IDP’s business, reducing market size by up to a quarter in the upcoming year.

In response to these challenges, IDP Education has announced plans to cut costs, with a projected earnings drop of nearly one-third in this half.

Implications of Restrictive Policies

Market Impact and Cost-Cutting Measures

IDP Education informed investors of its plans to mitigate the adverse effects of more restrictive immigration and visa policies in countries like Australia, Canada, and the United Kingdom.

These nations have unveiled more stringent policies that threaten to decrease the number of incoming international students significantly.

In light of these developments, IDP’s share price has already been under considerable pressure, plummeting nearly 38 percent over the past six months.

On Thursday, IDP shares opened more than 12 percent lower before climbing back to close down 6.5 percent at $14.68.

Historical Context and Ownership

IDP Education’s journey began in 1996 as an English-language testing business, half-owned by the country’s universities and employment platform, Seek.

Since going public on the Australian Securities Exchange (ASX) in 2015, the company has widened its scope to include comprehensive international student placement services affiliated with major universities.

The universities sold a 15 percent stake for $1.14 billion in 2021.

Insights from IDP Leadership

Cushioning Effect and Policy Expectations

IDP’s Managing Director, Tennealle O’Shannessy, has reassured stakeholders that the company will be somewhat cushioned from the full impact of these policy changes due to its strong partnership with higher-quality universities.

She asserted that the more restrictive immigration policies are often linked to election cycles and are therefore likely to be temporary.

“The purpose and the intent of the policy changes you’re seeing across all these nations is to bring a growing focus on quality and sustainable growth into the industry,” she noted during an investor and analyst call.

Focus on Higher Quality and Sustainable Growth

O’Shannessy went on to explain that these changes were geared towards weeding out lower-quality players in the industry, ultimately creating a more robust framework for reputable organizations like IDP.

“We have seen governments explicitly call out a focus on less scrupulous players and lower quality segments.

We think that it creates a stronger industry structure and gives opportunity for quality players like IDP to operate in a more consolidated and sustainable setting,” she elaborated.

Projected Decline in Student Numbers

Geographic Impact

IDP has forecasted a potential 20 to 25 percent reduction in the number of new international students across key markets such as New Zealand, India, and the United States for the next year.

This substantial drop underscores the far-reaching implications of the new policies.

An analyst from E&P Capital, Entcho Raykovski, described IDP’s update as indicative of a “significant deterioration in conditions” for the six months leading up to June 30.

The earnings for this period are estimated to be about 30 percent lower than those of the second half of the preceding financial year, with challenging conditions expected to persist due to the restrictive policy environment.

Market Reactions and Investment Analysis

Prasad Patkar, head of investments at Platypus Asset Management, mentioned that the share price decline was “relatively muted” since most of the news was already reflected in the price.

“Their balance sheet is pristine, they are profitable, and they are generating cash,” Patkar noted, emphasizing the company’s strong financial position.

He pointed out that while the new regulations might be challenging in the short term, they could be beneficial for IDP by ensuring that governments in destination markets like Australia seek higher quality students for their top-tier institutions, aligning perfectly with IDP’s focus.

Changes in Visa Policies

Australia’s New Policies

In Australia, updates to immigration policies have led to a 28 percent reduction in visa approvals for the three months ending March 31 compared to the same period last year.

The Labor government has unveiled additional measures to manage the rise in international student enrollments, including introducing a cap for each education provider.

However, the specifics of this policy are yet to be clarified.

Canada’s Two-Year Cap and the UK’s Policy Alterations

Similar policy changes are being implemented in Canada and the UK.

For instance, Canada introduced a temporary two-year cap on international student visa applications starting in January, expecting a 28 percent decline in the number of permits compared to 2023.

O’Shannessy acknowledged that IDP had navigated through various market fluctuations in the past but pointed out that the current scenario is unique due to the synchronised timing of policy changes across multiple key markets, including Australia, the UK, and Canada.

Opposition Proposals and Potential Restrictions

IDP Education could face further constraints under proposals from the Coalition.

Last month, Opposition Leader Peter Dutton proposed cutting permanent migration by a quarter to 140,000 a year, down from 185,000 if elected.

Dutton also suggested “enhancing the integrity of the student visa program” by introducing a tiered approach to fees to prevent students from exploiting the system.

University Concerns and Broader Implications

Impact on Universities

Universities have expressed significant concern over these changes, with some analyses suggesting that they could face reductions of between 60 and 95 percent in international student enrollments under various government and Coalition proposals.

This dramatic decline could have far-reaching implications for the universities’ finances and international standing.

Statements from Universities Australia

Luke Sheehy, Chief Executive of Universities Australia, argued that international students were being “treated as cannon fodder” to neutralize an electoral battle over migration and its perceived impact on housing affordability.

He emphasized that education is the second-largest export industry after mining, underscoring the sector’s importance to the country’s economy.

Strategic Adjustments and Long-Term Outlook

Adapting to the New Environment

Despite the challenges posed by these policy changes, IDP Education appears to be proactively adapting to the new environment.

The company remains optimistic about the long-term growth potential driven by powerful demographic and economic macro drivers.

Although short-term constraints on the supply side are evident, the core demand for quality international education is expected to remain strong.

Sustainable Business Practices

IDP’s focus on quality and sustainability aligns well with global trends in higher education.

By maintaining a strong partnership with top universities and adhering to sustainable business practices, IDP aims to navigate through this challenging period while positioning itself for future growth and stability.

Conclusion: Navigating Uncertain Waters

The future of IDP Education is marked by both challenges and opportunities.

While restrictive immigration and visa policies in various key markets pose immediate hurdles, the company’s strong focus on quality education and sustainable growth offers a path forward.

By leveraging its robust financial position and strategic partnerships with high-quality institutions, IDP is well-positioned to weather the current storm and emerge stronger in the long run.

As the global landscape of international education continues to evolve, stakeholders will closely watch howIDP Education adapts and thrives amidst these dynamic challenges.

The path forward requires not only strategic adjustments but also a commitment to maintaining the high standards that have positioned IDP Education as a leader in the international education sector.