English language testing provider IDP Education Ltd (ASX: IEL) today reported its half-year results for the 6 months to 31 December 2016. Here's what you need to know:
- Revenue rose 5% to $190 million
- Net Profit After Tax rose 19% to $24.1 million
- Earnings per share of 9.64 cents
- Dividends of 7 cents per share, 50% franked
- Ongoing strong growth in most regions
- Decline in Australian revenues due to introduction of competition
- Strong balance sheet with zero debt and $24 million cash
So What?
A strong result from IDP, with wider margins and a growing international business delivering a surprisingly good profit result. On a constant-currency basis, revenues rose 9% and IDP increasingly looks interesting for investors looking to gain some exposure to growing nations in Asia.
Wider margins were reportedly due to lower costs, although moderate fee increases (in constant-currency terms) occurred, and approximately one third of the growth in profit was also due to lower depreciation and amortisation charges.
There has been some scepticism in the market in recent times about IDP education, although the company has a very low level of short-seller interest, with just 0.44% of its shares held for short-sale as of 2 February.
IDP is also using some of its dry powder for acquisitions, with the recent purchase of Hotcourses, which operates a collection of education search websites, helping students find courses worldwide:
The acquisition gives IDP a presence earlier in the 'student acquisition' chain which I assume either is to capture a larger part of the international education market, and/or to feed more students into IDPs courses or insulate the company from competition. Investors will have to wait and see how this one goes.
Now What?
IDP Education is in the process of building a good international network of English language-testing services, which are close to an essential service – with the IELTS being one of the most straightforward ways for prospective workers and students to verify their English skills.
Given the continuing 'great migration' of individuals to English-speaking countries, IDP appears to have a solid international opportunity. That said, its profit margins aren't huge and have already shown a susceptibility to competition, at least in Australia.
IDP appears to be reasonable quality, although I'd question whether the company will be able to widen its profit margins significantly again in 2017. It appears to offer okay, but not great, long-term value at today's prices.
