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IDP Education Shares Surge Following FY25 Results and Aggressive Cost-Cutting Initiatives
IDP Education Limited (ASX: IEL) experienced a remarkable 35% increase in its share price on Thursday following the release of its fiscal year 2025 (FY25) results, which exceeded expectations despite ongoing challenges in the international education sector. The company also announced robust cost-saving measures aimed at navigating current market volatility.
The sharp increase in IDP’s share price has incurred losses of roughly $60 million for short sellers, who have a 14.2% short interest in the stock. Despite this rally, long-term investors are feeling the strain as IDP is down by 52% year-to-date and now 85% lower than the highs reached in November 2021.
Mixed Results for FY25
IDP’s performance for FY25 highlighted the difficulties faced by the international education sector, although several key financial metrics surpassed downgraded forecasts:
- Revenue: Decreased by 14% to $882.2 million, slightly above the estimated $864.2 million (2.1% beat).
- Underlying EBIT: Plummeted 54% to $119 million, versus an estimate of $117.8 million (1.0% beat).
- Adjusted NPAT: Fell 55% to $64.7 million, slightly below the forecast of $68.3 million (5.3% miss).
- Full-Year Dividend: Declared at 14 cents per share.
The operational metrics underscored the market’s pressure, with student placements down by 29% year-on-year and a decline of 18% in language testing volumes. Nevertheless, IDP managed to mitigate some of these declines by leveraging pricing, resulting in a 15% increase in average student placement fees and a 5% rise in language testing costs. A significant focus on cost management also culminated in a 6% reduction in direct costs and a 5% decrease in overhead expenses.
Positive Guidance for FY26
Looking ahead, IDP provided optimistic earnings before interest and tax (EBIT) guidance for FY26, expecting results in the range of $115 to $125 million, which is a 4.7% increase at the midpoint over consensus estimates of $114.6 million. This outlook presumes a challenging environment, with anticipated declines in market volumes of 20-30% from the already low levels of FY25.
Cost-Reduction Strategy
A significant factor contributing to the stock’s positive movement is IDP’s comprehensive transformation initiative, which aims to reduce operating costs by $25 million in FY26. This figure greatly exceeds analyst expectations of approximately $14 million in cost savings. The initiative is expected to lower overall operating expenses to around $338 million, down from $352 million in FY25, according to E&P analyst Entcho Raykovski.
Market Dynamics
The recent rally is notable, especially following a severe 48% decline in stock value earlier in June after an unexpected earnings downgrade. At that time, IDP warned of a 28-30% drop in student placements and an 18-20% decrease in language testing volumes, with FY25 EBIT guidance falling significantly short of market expectations.
The combination of a pre-results sell-off, rising short interest, and prevailing pessimism appears to have set the stage for a strong market recovery.
Future Outlook
While Thursday’s rally offers some short-term reprieve for IDP, the company faces significant challenges in returning to its previous earnings levels. Most analysts project that FY26 will represent the low point for both student placements and English language testing, with a recovery expected in FY27—albeit remaining below the record highs recorded in FY23-24.
A majority of analysts maintain a positive outlook for IDP. Macquarie, which holds an Outperform rating and a target price of $6.40, asserts that IDP has the potential for double-digit growth in the long run. However, current trading conditions are adversely impacted by negative sentiment and anti-student immigration policies in key markets, which are expected to improve by FY26.
