Group , IDP Education Ltd (ASX: IEL), W10A

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Investment Recommendation
This report analyses IDP Education (ASX: IEL), and we eventually value the company with a BUY
recommendation. The residual income valuation method suggests a $30.00 per share, a 9.17% upside
from April 13, 2023, with a closing price of $27.48. With more than a 90% probability of having a
price between the range of $21 - $40. Our assumptions, recommendation and valuations are based on
six perspectives: a business strategy, accounting analysis, financial analysis, forecast, valuation and
investment risk.
Business Strategy
IDP implemented the strategy of global network expansion, digital transformation and expert people
maintaining to pursue sustainable profits and boost its market shares in the future.
Accounting Analysis
IDPs have discretionary on some accounts, which affects investors’ investment decisions, requiring
fair accounting adjustments and risk alerts.
Financial Analysis
After applying financial analysis of DuPont, Cross-sectional and other ratios, we figured that IDP’s
core values are supported by a steady increase in operating cash inflow and the potential growth in
revenue by expanding its revenue overseas. Especially Southeast Asia on the demand side and the UK
and Canada on the supply side. With significant amounts of cash and cash equivalent and low long-
term debt supporting potential corporate finance activities and future M&A actions.
Forecasting and valuation
According to the macroeconomic trend, industry circumstances and IDP’s business strategy
implementation, we determined the fairness assumption of key ratios. The residual income model is
used to estimate the implied share price and support the suggestion of BUY.
Business Strategy
Industry Recap and Outlook (Education and Training)
The education and training industry has had a slow-paced development with a 0.2% annual growth
rate over the last five years due to pandemic effects and strong government regulation. However, high
barriers to entry and stable market conditions have helped maintain the industry's performance.
The industry is projected to grow at a 2.5% annual rate and reach $163.6 billion with a profit margin
of 6.6% by 2023-2028 (IBIS World, 2022). The main trend will be a post-pandemic rebound, with
returning international students expected to contribute to revenue restoration to pre-pandemic levels in
the next few years.
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The education and training industry life cycle has been mature. With increasing globalisation and
fiercer competition, digital innovations are continuously emerging in the industry through digital
classrooms, virtual agency models, and other relevant digital teaching and educational services tools.
Digital innovations have become normalised during the pandemic and fit well with education
globalisation contexts.
IDP’S Business Strategy and Profit Sustainability
As a leading student service provider, IDP Education has expanded globally with two primary
businesses: Student Placement and English Language Testing Services. Despite pandemic effects in
the past three years, the company rebounded in FY22, with overall revenue showing a 15% annual
growth rate over the past five years and a 50% growth in FY22. Both main businesses saw strong
growth, with Student Placement volumes increasing by 45% and English Language Testing volumes
growing by 67% globally, led by the Indian and Nepal markets (IDP Education , 2022).
Global network expansion with differentiated offerings
By plotting businesses worldwide, IDP Education has been achieving network diversification to
reduce the risk associated with any one market or service, ensuring a steady revenue stream
over time. IDP Education has set up 33 subsidiaries worldwide now, based in the US, China, Japan,
Indonesia etc.; among them, the subsidiaries in Asia contributed the central part of the total revenue in
FY22. FY22 Annual Report disclosures show that IDP Education has placed 45% more students in all
major regions. In addition, India and Nepal led the globe in IELTS test takers, up 67%.
IDP has also continued to pursue a complete product profile, including developed student
placement services and diversified IELTS testing. Besides the global-expanding network, IDP has
several business segments. Based on the latest information from IBIS World, 23% of its total revenue
comes from student placements, 29.3% of its total revenue comes from the IELTS examination (IBIS
World, 2022), and the rest portion of the total revenue comes from three other segments, mostly from
unallocated business, showing the diversified offer services.
Student Side
• IDP Education introduced the online IELTS test and computer platform during the pandemic,
facilitating more diversified, personalised language test services to improve students’ IELTS
experience and mitigate the pandemic effects. In addition, IDP planned to expand its IELTS
online to over 50 countries in 2024 and provide single subject retest service to make sustainable
profits.

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• IDP has made available to students a wide variety of resources to assist them in better
comprehending the implications of their choices. The information IDP offers may also increase
the likelihood of a student getting admitted into the college or university of their choice.
Institution Side
• IDP has developed a solution that is more tailored to the specific needs of institutions to aid these
institutions in meeting diversity requirements by assisting them in customising their recruitment
criteria to attract the most qualified students.
• IDP Education has a competitive edge because it values student experience and can more
effectively collaborate with educational institutions to promote its intrinsic value proposition. In
addition, it has an integrated, globally growing network and differentiated offerings.
Digital transformation
IDP has put many resources into its digital platforms: IDP acquired Hot Courses in 2017 (IDP
Education , 2022), a virtual agency that enables IDP to connect with students from the beginning of
their academic careers. This acquisition was built on the firm groundwork of IDP's worldwide
deployment of its massive technological infrastructure. Fastlane is another data-science-driven
platform introduced in 2022 (IDP Education , 2022). It has revolutionised to enable students to get
quicker, personalised, and more transparent information about their study options. It has also offered
universities a more tailored experience while driving greater volume, diversity, and efficiency.
With the help of this digital platform, international students have been guided towards achieving their
educational and professional goals over the long term. In addition, the company has offered students
more options regarding when and where they study, boosting student engagement and retention.
Valuing expert people and sustainable company culture
Expert people are the solid foundation for IDP to expand its business while maintaining its firm
reputation successfully. To attract and retain expert people, IDP has increased remuneration, adapted
to diverse employee cultures, promoted a female leadership policy, and implemented a long-term
incentive policy. As a result, approximately 50% of the employees throughout the company are
female, which means that gender diversity is balanced compared with the average number in the
industry, 25%. In addition, IDP invests in the professional development of its employees and provides
training opportunities. As a result, the investment for headcount expansion was quite significant,
which increased by 31% in FY22.
IDP Education has been dedicated to building sustainable company culture to positively affect
local communities, individual lives, and the environment. The company has concerted an effort to
create a more inclusive and balanced workplace. It also pledged to have diverse and inclusive
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leadership because it thinks having leaders from both sexes is better for business and a more accurate
picture of the community.
The implementation of valuing expert people and sustainable company culture has allowed IDP to
recruit and keep some of the best talents in the industry, thereby maintaining the position as one of the
world's leading educational services providers.
Accounting Analysis
Key accounting policy
Key accounts that require special attention in IDP are revenue, income tax, and intangible assets. The
management has discretionary over measuring these accounts, involving estimation, judgment and the
accounting methods employed. As a result, these accounts carry the risk of earnings manipulation,
which may affect subsequent forecasting and valuation and require review and adjustment.
Revenue Recognition
IDP employs different revenue recognition methods for various revenue streams: For student
placement, revenue is recognised at the time point when the service performance obligation is
satisfied after applying the withdrawal ratio. Revenue from other streams is recognised over time: The
revenue from the IELTS examination and Digital marketing is recognised when resources are
consumed, or costs are incurred, applying the input method; the IELTS language teaching services
apply the output method, recognising revenue upon course delivered. Manipulation risks apply
different recognition methods: The withdrawal rate used to recognise student placement revenue
requires management judgment. In contrast, revenue from other businesses recognised over time
carries the risk of a Cookie jar (time shifting).
Revenue recognition follows AASB 118 revenue (Australian Accounting Standards Board, 2007), but
IDP's annual report does not disclose information about the withdrawal rate, measurement method of
resource consumption, cost occurrences, and the recognition timing of course delivery. Therefore,
more than those high-level disclosures are needed to determine.
Income Tax (current & deferred)
Income tax comprises current and deferred tax: Current tax is based on taxable income and the tax
rate at the reporting date, while deferred tax is calculated with temporary differences of book value
between the financial accounting policies and the tax accounting policies.
In FY22, IDP's deferred tax liability increased significantly compared to FY21, from $4.9 million to
$48.2 million (IDP Education , 2022). The main source of this movement was the increase in
intangible assets. Although IDP disclosed its acquisitions in FY22 that significantly raised the
carrying amount of intangible assets, it is still necessary to confirm their fairness.
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The uncertain tax positions arising from contingent liabilities may also impact IDP's after-tax profits.
As a multinational corporation, IDP must pay taxes in various regions worldwide, so certain projects
require management's judgment and estimation and must be scrutinised by authorities in different
regions, such as India. For example, in FY22, IDP disclosed a disputed contingent liability amount of
$23 million after scrutiny by Indian authorities (IDP Education , 2022). In addition, contingent
accounting items require estimation and judgement on the likelihood and proportion of contingent
liabilities occurring.
Intangible Assets
As a company in the education services industry, intangible assets comprise a significant proportion,
about 45%, of IDP's balance sheet.
IDP complies with AASB 138 intangible assets (Australian Accounting Standards Board, 2007):
Their initial cost determines the value of internally generated and separately acquired intangible
assets. The value of intangible assets generated from acquisitions is based on their fair value at the
acquisition date. IDP also disclose that it amortises its finite-life intangible assets, such as customer
relationships, website technology, and databases, over adjustable amortisation periods and performs
impairment tests when impairment indicators are present. While the intangible assets, such as
contracts for English language testing and goodwill, access the annual impairment testing. The
adjustable amortisation periods for finite-life intangible assets can affect their value. And both finite
and indefinite-life intangible assets’ impairment or amortisation carry the risk of manipulation. In
addition, IDP calculates the value in use of indefinite-life intangible assets based on three-year cash
flows, terminal growth rate, and after-tax discount rate, which requires a significant amount of
assumptions and judgments from management.
In FY22, IDP acquired BC India with GBP 139.1 million in cash, equivalent to AUD 260.7 million.
IDP recognised $171.2 million of intellectual property exclusive to contracts for English language
testing and goodwill as indefinite-life intangible assets and acknowledged an additional $126.1
million in goodwill after the acquisition (IDP Education, 2021). This indicates that the entire
consideration for the acquisition was used to obtain intangible assets. Given that intangible assets
have a significant degree of discretion, assessing the fairness, management's ability, and objectivity in
this area is necessary.
Management incentives
The management incentives of IDP companies are analysed in the following four areas:
Compensation, Balance sheet outcomes, Control influences or capital market, and other stakeholder
incentives.
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Compensation
IDP's total compensation in FY22 was significantly increased to $8.2 million from $5.55 million in
FY21 due to the increased weighting of the CEO's award and the creation of the Executive KMP
recognition award to motivate management's outstanding performance. And the Board also grants
non-continuing equity awards to shareholders: Each equity entitles the executive will receive a full
share of IDP common stock at no cost at the end of the service period. The fact that IDP's total
shareholder return has increased eightfold between IPO and FY22 is a testament to IDP’s focus on
management and shareholders. IDP has ensured that management and shareholders have a stake in the
company, reducing agency risk and contributing to the long-term development and growth of the
company's interests.
Financial statements outcomes
Managers may have the incentive to improve EBIT and leverage, help to meet loan covenants and
enhance the company's reputation and credibility.
IDP disclosed that the loan covenant defined the calculation of EBITDA and then the leverage ratio,
which means it must meet the leverage ratio required by the debt covenant to control the net
borrowing cost. So, the limitation of debt covenant will motivate the managers to do earnings
management.
In addition, IDP has kept meeting the forecast guidance of FCF for over five years, recognising the
risk of manipulation to meet the brokers’ estimation and stabilise the stock price.
Spiritual recognition training
IDP's Maher programme aims to train emerging leaders and unlock their potential, particularly by
providing women equal access to career opportunities and training. IDP plan to improve employee
identity via the Maher programme, offering employees opportunities for career development and
advancement, helping them take on more important roles. In addition, the company offers leadership
training globally to help employees improve their leadership and teamwork skills. These initiatives
not only help to raise the company's profile but also attract more talented employees.
Red flags
Reviewing IDP’s report, the red flags below are identified and ranked by importance.
Deviation of DTL
Excluding the severely affected FY20-21 due to the pandemic, there has been a significant increase in
deferred tax liability in FY22 compared to the past ten years (2010-2019), which has resulted in a
noticeable decrease in income tax paid even though the income tax expenses have increased.
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Fail to/ meet estimation.
In FY22, IDP’s operating indicators, such as sales revenue, gross income, and EBIT, failed to reach
average forecast values. And over the past five fiscal years, IDP's Free Cash Flow has consistently
met the forecast values, indicating a risk of management manipulation to maintain stock prices.
Transparency
The nature of IDP's industry results in diverse revenue sources and discretionary timing for revenue
recognition. But IDP's insufficient disclosure of revenue-related timing poses a risk of time-shifting.
One-off item
Due to the pandemic, IDP implemented remuneration reductions in 2020 and 2021. As a result, the
unpaid remuneration and bonuses in FY21 and the rewards for the successful acquisition of BC in
India were issued as one-off payments in FY22. However, the remuneration continuously granted
from 2010 to 2019 should not be excluded as a one-off expense item.
Executive change
In May 2022, Barkla resigned from the CEO position, which CFO Walton temporarily held until the
appointment of the new CEO, Tennealle O'Shannessy, in February 2023.
Accounting adjustment
Revenue
Although there is a risk of manipulation, IDP only provided high-level disclosures. The withdrawal
rate, input/output method regarding resource consumption or course delivery timing, and related
measurement standards have no historical data or standard for reference. Additionally, based on the
five years average before the pandemic (2015-2019), IDP's revenue growth rate is around 15%. The
revenue in FY22 is in line with industry averages, so no adjustments are made.
Income Tax
First, regarding the disputed tax position, IDP disclosed that the $23 million contingent liability under
review by Indian authorities would not result in significant cash outflows in the near term without
details on the categories, sources, or reasons for the disputes. Therefore, no varies can apply to
contingent liability and the tax deposit in India as a prepaid asset.
Additionally, for the deferred tax liability. The increased intangible assets acquired from the Indian
BC are a fair accounting record according to the significant increase in revenue and volume of
English testing in FY22. Therefore, it proves that the intangible assets are acquired at fair value, with
no space for adjustment.
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Intangible Asset
According to the growth rate and disclosed revenue generated from the acquired BC of India, we
recognise that the compensation of the acquisition is fair. But the related amount recorded by IDP for
the DTL that was acquired from the acquisition in FY22 was not consistent with the amount of the
acquisition.
The initial recognition of GW does not affect the temporary difference, and the deferred margin tax
rate disclosed is 30% in FY22, according to IDP’s annual report notes. IDP recorded a DTL arising
from the business combination amounting to 42.812 million (IDP Education , 2022), based on the
formula for calculating temporary differences, the recognisable intangible asset acquired from
acquisition should be 128.4 million, other than the 171.2 million. No impairment is applied to this, so
we only lowered the ending intangible asset of 42.8 million in FY22.
Accounting Evaluation
In the FY22 financial report, IDP demonstrated a robust performance. Although adjustments for
intangibles and more details are required, the rest of the report is fully explained and supported by
detailed data. This demonstrates the extremely high level of financial management and operations at
IDP. In addition, the acquisition of BC India shows that IDP still has good scope and prospects for
growth, particularly in the Asian market and implementing its global network expansion.
Financial Analysis
Dupont Analysis
FY21 is an outlier for the data due to the impact of Covid -19. However, IDP has shown sustainable
growth since FY18.
We take a correlation analysis and determine that profit margin is the primary source of the
fluctuations of ROE: A correlation of 67.6% reflects a strong positive relationship between Profit
Margin and ROE.
According to the profitability decomposition framework, IDP establishes a steady profit margin
growth of 5%. In addition, IDP’s business strategies raise its profits margin: The global network
expansion increases the customer value and expands the scope of business, the complication of
product profile provides diversified products for customers like IELTS testing online and computer,
the digital transformation like the establishment of Fastlane and the acquisition of Hot course
increases the asset utilisation efficiency. All of the above boosted IDP’s profit margin and raised the
ROE.


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DuPont FY18 FY19 FY20 FY21 FY22
Profit Margin 10.57% 11.09% 11.55% 7.47% 12.96%
Asset Turnover 1.843 1.817 1.096 0.757 0.950
Leverage 2.781 2.579 1.959 1.789 1.980
ROE 54.18% 51.95% 24.80% 10.12% 24.38%
Table 1: Dupont analysis (Factset, 2023)
Cross-Sectional Analysis
Given IDP Education's distinctive business model, many of its primary competitors, such as the
British Council and Study Group, are privately owned entities. For comparative purposes, only the
publicly traded global education service providers with significant involvement in student placement
or English language testing are involved, including Pearson (PSON) and New Oriental Education &
Technology Group. (EDU), and Dadi Education Holdings Ltd (8417. HK).
FY22 Performance IDP PSON EDU Dadi
Profit Margin 12.93% 6.3% -38.25% -30.71%
Asset Turnover 0.95 0.52 0.38 0.21
Return On Equity 24.33% 5.58% -27.56% -6.86%
Rec. Turnover 6.44 3.78 20.97 3.41
Table 2: Cross-sectional analysis (Factset, 2023)
Comparing IDP’s performance to its peers shows the business strategy and financial management that
highlights IDP’s strength: IDP’s profit margin and ROE exceeds significantly all its competitors,
mainly due to the implementation of business strategies like network expansion and digital
transformation. By diversifying and operating a business in different countries, IDP has successfully
minimised the impact of Covid-19. Companies such as EDU and DADI only operate and focus on
providing services for Hong Kong and Chinese customers, which suffer during the pandemic and
record a negative profit margin. The digital transformations via digital platform improvement and
acquisition boosted IDP’s asset utilisation efficiency and conformed to the development trend of The
Times. The sufficient financial fundamental of transformation and expansion arising from the position
of a market leader is also a key element to operate better than the industry peers.
It is common to see that high margins firms have a lower asset turnover. However, IDP shows the
highest profit margin and asset turnover thanks to the pursuit of differentiation strategies. The
competitors with significantly lower asset turnover than IDP show that experienced people and
sustainable companies’ culture strategies have a solid foundation in managing the use of resources
and achieving objectives.
IDP also has a comparatively high receivable turnover to PSON and DADI. The EDU, with a rec
turnover of 20.97, which is higher than the rest, mainly operates in the tutoring industry, considering
it an outlier at this stage. IDP has a Rec. turnover significantly higher than PSON and DADI, showing
a great relationship with debtors, efficient credit sales management and high-quality customers.
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Revenue growth rate (IDP vs DADI, IDP vs PEARSON)
IDP’s revenue growth in the student placement business outperforms DADI significantly, mainly
cause of the different customer segments: DADI operates only in Mainland China and Hong Kong,
while IDP operates worldwide and acquires Intake Education from Taiwan.
Revenue Growth Rate (FY18-22) FY18 FY19 FY20 FY21 FY22
Student placement IDP 19% 39% 11.9% -24.8% 50%
DADI -3.3% 7.9% 11.7% -20.8% 4.6%
English testing IDP 22% 17% -9.5% 0% 57%
Pearson 7% 8% -19% 17% 35%
Table 3: Cross-sectional analysis (Factset, 2023)
PTE academics, an alternatively English IELTS examination, has threatened IELTS, which AI scores
and can provide results within a week. However, the table shows that IDP still outperforms Pearson,
and its English Examination Revenue has grown sustainably despite the rapid growth of PTE. This is
mainly caused by strategies taken by IDP to complete its products profile: Introducing IELTS Online,
acquiring the IELTS business in India and planning to provide IELTS in more than 50 countries in
FY24.
Ratio Analysis
The current ratio shows that IDP is in a good short-term position as its current asset can cover 1.6x its
current liabilities. Given the nature of IDP, inventory is low, and the current ratio can clearly show the
ability to pay current liabilities quickly. Furthermore, the interest coverage ratio for IDP keeps strong,
showing that the EBIT can cover the interest expense and IDP has no solvency risk; even in FY 20,
when it suffered a significant effect from a pandemic, IDP still kept a positive operation ratio, proving
the stability of the company.
Focusing on a long-term perspective, IDP takes a low long-term debt level, which shows that it did
not hold much long-term debt; IDP’s debt level is extremely low compared to its peers. In addition,
the low leverage provides IDP flexibility to raise funds through debt in the future.
Altman’s Z score, used to calculate the probability for a company to default, is 10.81 for IDP and is
three times more than its competitor. This score of IDP has been stable for the last five years, showing
the relative robustness of the company. The Z score above 3 reflects a low financial distress risk:
IDP’s high Z score provides the capacity and option to raise long-term debt in the future without
facing solvency risk.
IDP outperforms its peers in almost all financial measures, demonstrating excellent capital
management and maintaining a low debt ratio. However, it is worth mentioning that the Interest
coverage ratio is much higher than its peers. As a result, IDP can do more debt raising to provide
more funds to expand its business externally and provide a bright future for the company.
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FY18
IDP
FY19
IDP
FY20
IDP
FY21
IDP
FY22
IDP PSON EDU DADI
Current Ratio 1.015 1.306 2.520 2.528 1.612 1.89 2.62 13.85
Op. Cash Flow Ratio 0.63 0.53 0.46 0.68 0.61 0.501 -0.22 -0.2875
Interest coverage ratio 31.67 48.55 17.97 9.30 20.89 7.26 -135.02 -47.51
LT Debt Commitment 0.02 0.00 0.02 0.03 0.02 0.16 0.36 0.8
An Altman’s Z score 13.92 17.32 10.84 15.42 10.81 3.23 3.02 4.73
Table 4: Financial ratios analysis (Factset, 2023)
Forecast
Sales Growth
The overall revenue is expected to grow to $1797.97 million in FY27, with an average 16.78% CAGR
for the five years. The detailed analysis of the major business revenue forecasts is as follows:
Student Placement
Australia: The student placement business in Australia is projected to have an average CAGR of
12.36% to $176.01 million from FY23-27. While there was a strong post-COVID rebound in FY22, it
is anticipated that the market will become mature in the future, resulting in a 10% year-on-year
growth rate decrease from FY23-24 and 5% from FY24-27; the forecast is based on the fact that
Australia as a mature market and hard to have aggressive growth in the future.
Multi-destinations: The student placement business in multi-destinations is expected to have an
average CAGR of 27.38% to $544.73 million from FY23-27. IDP's global network expansion strategy
like expanding to diversify countries and businesses, along with Hot course buyouts and Fastlane
introduction, has accelerated the company's digital innovation and multi-destination business
expansion, resulting in a 55% growth rate for FY23 and over 20% for subsequent years.
English Language Testing
The English Language Testing business revenue is expected to have an average CAGR of 11.87% to
$897.72 million from FY23-27F, with a strong growth rate of 57% in FY22 due to the India British
Council buyout. While the merger and acquisition strategy and the introduction of IELTS Online will
boost revenue until FY24, fierce competition from more cost-efficient alternatives such as PTE and
Duolingo threatens IDP's growth. But still limited by the recognition of educational institutions and
immigration, IDP is the market leader. As a result, revenue growth is expected to fall between 5-15%
from FY25 onwards.
Others
The other businesses, including English Language Teaching, digital platform services, and
advertising, are expected to have an average CAGR of 23.73% to $179.51 million from FY23-27. The
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company's digital transformation strategy and increased offline English language teaching options are
expected to drive revenue growth, resulting in a steady 25% growth rate over the next five years.
Operating profit margin & Asset Turnover
IDP's operating profit margin is expected to rise steadily during FY23-FY27, while the asset turnover
ratio will decline before rising. The acquisition of BC India and Intake has increased IDP’s market
share, completed IDP’s global footprint, and improved the company's profitability. Meanwhile, the
global network expansion, like expanding IELTs online to 50+ countries in 2024, enhanced IDP’s
economies of scale. Those will increase IDP’s bargaining power and profitability. In addition, IDP’s
digital transformation strategy improved IDP’s business process efficiency and accelerated asset
utilisation, then boosted its profitability. And the implemented business strategy significantly pulls up
the operating asset in FY22-23.
After the aggressive global expansion, IDP needs to stabilise and consolidate the market in the
following years. Then the increased asset utilisation efficiency and sales revenue will boost the ATO
in FY24-27.
Financial Leverage
IDP's financial leverage has been negative in recent years, indicating that IDP has abundant cash
reserves and stable cash flows. As IDP acquired Intake in FY23 with debt and cash, the FLEV will
increase slightly in FY23. But then, with increased profitability after expanding to a global network
and digital transformation, IDPs should operate as a net debtor and decrease stabilised in FY24-27.

Table 5: Forecasting
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Valuation
Pricing
We recommend a buy with a target price of $30.00 for IDP Education. The valuation is achieved
using residual income valuation, looking into the residual income, cost of equity and the predicted
terminal growth rate. Different growth rate assumptions are used in different revenue streams and
regions when forecasting the company.
Our valuation is based on a cost of equity of 9.43% and a terminal growth rate of 6.81% based on the
diversified revenue stream and the long-term company growth forecast of IDP being the market leader
in the English Testing and the Student Placement industry.
• Bull Case $47.27 (72.33% Upside)
New business strategies meet expectations with significant growth in all business segments and
regions, especially in India and the UK. No integration problem after the acquisition of two new
companies, the synergies exceeded management expectations and led to revenue growth. Meanwhile,
digital transformation strategies help decrease operating costs and increase profit margins.
• Base Case $30.00 (9.37% Upside)
Equal to our Residual Income Valuation. Student placement revenue from Australia remains at a
comparatively low growth rate, with significant growth in multi-destination student placement and
English testing. The company successfully penetrate the Indian and UK markets, with a decrease in
cost due to digital transformation.
• Bear Case $22.28 (18.78% Downside)
Acquisitions turned out to be a failure; the management of IDP failed to enter the Indian Ielts market,
and Intake Education turned out to be an overvalued acquisition for IDP Education. As a result, they
were hindering the development of IDP and causing a decrease in the expected terminal growth rate.
Residual Income Valuation Assumptions
WACC (cost of debt/equity)
Based on the financial leverage trend of FY17-22, IDP Education has gradually turned into a net
lender from a net borrower. In FY22, IDP used cash to acquire 100% BC India for approximately
$260 million. In FY23, IDP Education acquired Intake Education for $83 million using a combination
of cash and debt (Market Index, 22), so the net debt borrowing costs increased. After that, IDP should
enter a stable growth phase following its expansion. As an industry-leading company with a stable
credit rating, its financial leverage is expected to stabilise. Therefore, we assume the cost of debt will
remain at -3%.
In FY17-22, IDP's cost of equity remained stable at about 11.5% (excluding the pandemic that
affected FY21 with significantly increased market risk). This is mainly due to the stability of IDP's

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The simulation supports the valuation of our target price of $30; it shows a positive skew and a long
tail showing a limited downside for the bear case and a huge upside for the bull case. According to the
table on the right, nearly 92.38% of the scenarios predict a price between $21 - $40. At the same time,
there is around a 6.5% probability that the share price will have a significant upside of more than 50%
upside.
Investment risk
Regulatory Risk
IDP Education operates across over 20 jurisdictions in multiple countries and is subject to different
regulations and laws accordingly. For instance, student placement as the main part of its business
must be provided strictly based on visa or immigration regulations. So, any emendations on the
existing related regulations or newly promulgated laws in the countries where IDP operates can cause
the risk of negative influences on the capabilities of IDP to run the business properly.
Market Risk
After the prevalence of the COVID pandemic, the Fed’s aggressive raises in interest rates, and
ongoing geopolitical tensions in recent years, concerns about the global debt crisis and worldwide
economic recession are growing. Under the circumstance, not only the recession but also the likely
conflicts or even wars between the countries can harm the business of IDP: students may fail to study
abroad due to the bad economy or abandon studying abroad considering the tense political
relationship among the countries. Also, IDP’s competition with other education support service
companies is getting more intense; IDP has to keep investing in innovation and providing better
services at a lower cost to maintain its market share or even increase it.
Operation Risk
Besides the normal operation risk faced by all businesses, like data security and potential litigation,
two outstanding risks are mentioned above. One is the recent appointment of the new CEO in
February 2023 which was about ten months after the old CEO resigned, the time lag is a bit long, and
the new CEO may carry out some new strategies in IDP. The other one is that IDP raised about $100
million in debt in the fiscal year 2022, which increased the total debt/equity ratio and brought
concerns about its potential solvency risk.

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