Monday, June 24, 2024

Guess which beaten-up ASX 200 stock is being bought up by this multi-billion-dollar fundie

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Multi-billion-dollar fund manager Ellerston Capital is the latest fundie to undertake a buy-up of ASX education stock IDP Education Ltd (ASX: IEL).

IDP Education is a global education company that offers English language tests and helps overseas students get into university courses in Australia, New Zealand, the United States, and the United Kingdom.

IDP Education shares are trading at $15.04 on Tuesday, down 1.89% for the day.

Let’s investigate.

What’s happening with this ASX 200 stock?

This ASX 200 stock has taken a beating over the past 12 months, falling 37.3% while the S&P/ASX 200 Index (ASX: XJO) has risen 8.4%.

Key challenges for the company include cuts to migration in several countries, thereby stemming the flow of international students seeking a world-class education via its placement services and language tests.

Some traders expect IDP shares to weaken further, thereby providing an opportunity for short-term profit via short bets. This is why the ASX 200 stock is one of the most shorted equities on the market right now.

However, other experts see an opportunity to buy the dip and capitalise on an anticipated rebound over the medium to long term.

As reported in the Australian Financial Review (AFR), Ellerston portfolio manager and director Chris Kourtis told clients in a note that IDP Education shares were trading at an “attractive entry point”.

Kourtis said:

[IDP Education] is a name we have patiently been monitoring for some time.

The uncertainty associated with the near-term earnings risk in major markets like Canada and the UK have clearly weighted heavily on the stock and analysts have rebased their earnings lower.

But Kourtis thinks they’ve overdone it, adding: “[IDP] should emerge stronger when global migration and education reverts in the medium term.”

What’s the latest news from IDP Education?

Last week, the company told the market that student visa changes in several countries had led to lower volumes of language testing and university placements in 2H FY24.

As a result, management is expecting flat earnings in FY24, with “challenging” market conditions ahead.

The company expects the size of the international education market to decline by 20% to 25% over the next 12 months.

As a result, IDP will cut costs to offset the impact of fewer students on revenue while aiming to grow its market share.

The company said:

As the leading quality player in the sector, IDP remains very well placed to help students and institutions navigate these challenging market conditions and expects to grow its market share in student placement.

Despite the shorter dated cyclical dynamics, IDP remains confident in the long-term growth drivers for the industry.

Experts explain why this ASX 200 stock is a buy

The AFR reports that Airlie Funds Management and DNR Capital have also bought this ASX 200 stock this year.

Magellan Financial Group Ltd (ASX: MFG) has also just become a major shareholder with an initial 5% stake purchased on 31 May.

Airlie’s Emma Fisher told the AFR last month that her fund deemed IDP a good business that was “cheaper than its worth”.

Jamie Nicols from DNR Capital told clients in a note that their purchase was opportunistic and part of a broader strategy to buy high-quality ASX businesses that were on the nose with investors.

Prasad Patkar, the head of investments at Platypus Asset Management, recently described the ASX 200 stock as offering “stand-out value”.

Goldman Sachs recently reiterated its buy rating on IDP Education. However, it reduced its 12-month share price target from $25.30 to $21.75 following the company’s update last week.

The broker commented:

IEL remains well placed to capitalise as conditions normalise into FY26E, with IEL selectively investing for growth while SP competitors come under significant pressure. In our view the regulatory headwinds are cyclical, while structural SP growth can resume off the FY25E baseline.

But not everyone is on board…

John Athanasiou of Red Leaf Securities reckons the ASX 200 stock is a hold for now.

Commenting on The Bull, he said:

IDP Education remains a quality business, but we have regulatory concerns about possible cuts to net migration in Australia.

Also, the company expects the international education market to decline between 20 per cent and 25 per cent in the next 12 months. It remains confident about the longer term.

While IDP’s fundamentals are robust, the company recently announced that adjusted earnings before interest and tax in fiscal year 2024 are expected to be broadly in line with the prior year. The company is implementing a cost cutting program. We suggest monitoring developments closely.

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