The IDP Education Ltd (ASX: IEL) share price was sold off on Monday.
The language testing and student placement company's shares ended the day 16% lower at $21.71.
Why did the IDP Education share price crash?
Investors were hitting the sell button on Monday amid news that the company's monopoly in Canada is coming to an end. This follows a decision by the Immigration, Refugees and Citizenship Canada (IRCC) to open the door to four new English tests.
This is a big blow given that approximately a quarter of the company's IELTS volumes are estimating to come from this market.
And while yesterday's decline was obviously disappointing for shareholders, analysts at Goldman Sachs believe it could be a buying opportunity for the rest of us.
According to a note, the broker has retained its buy rating with a new price target of $30.60. Based on the current IDP Education share price, this implies potential upside of approximately 41% for investors over the next 12 months.
What did the broker say?
The broker acknowledges that IDP Education has been dealt a blow in Canada and has downgraded its earnings estimates accordingly. The broker commented:
Following the Canadian government's announcement to allow competing English language tests for its Student Direct Stream (SDS) visa application program from Aug-23 (first take here), we update our FY23/24/25E EBIT -3%/-14%/-13% and our TP reduces -14% to $30.60/share in line with earnings.
Canada's announcement represents the end of the last monopoly position that IELTS occupied in major English-speaking Commonwealth nations (Australia, Canada, New Zealand and the UK) and opens up its Canadian volumes to competition, we believe largely from Pearson Test of English. Our analysis indicates that Canadian SDS volumes before the changes were ~500k (or ~1/4 of total IDP IELTS volumes); our new estimates call for flat FY24E IELTS volumes based on ~7-8% system growth, wholly offset by ~30% market share loss in Canada (similar to IDP's experience when PTE was approved in other markets).
So, why should investors stay positive? Well, despite the above, the broker continues to believe that IDP Education is well-placed for long-term growth thanks to structural drivers. It adds:
On our new estimates, IDP trades on 34x/27x FY24/25 P/E, a material discount to its historical 5-yr avg 12mf/24mf multiples of 54x/38x and representing an attractive entry point into IDP's long-term SP structural growth story; although we accept that in the near term the market may need to digest consensus earnings downgrades and gain greater comfort on IELTS growth re-basing. With +41% upside to our TP, forward estimates de-risked and the key potential negative catalyst now behind IDP, we retain our Buy rating.
