On Friday, UBS adjusted its financial outlook for IDP Education (IEL:AU) (OTC: IDPUF), reducing its price target from AUD17.65 to AUD16.10, while maintaining a Neutral rating on the company's shares. The revision follows a reassessment of the company's second half of 2024 and full-year 2025 earnings expectations, which indicated a more significant downturn than initially anticipated.
The firm's analysis suggests a 10% drop in consensus adjusted EBIT for the fiscal year 2024, with a sharper 27% decline expected in the second half of the year. Additionally, the forecast for UBS's estimates (UBSe) sees a 5% decrease overall and a 15% fall in the latter half of the year. Market conditions will remain difficult in the short term, particularly as policy challenges converge in Australia, the UK, and Canada. Despite these challenges, IDP Education has a history of outperforming the market.
UBS noted that the results in the UK were more favorable than anticipated, and it appears that the market has already accounted for most of the potential negative impact of policy changes in Australia. IDP Education has indicated an expected 20-25% downturn in the Australian market.
However, some concerns need further investigation, particularly the flat adjusted EBITA, which suggests a significant disruption in the second half of 2024, including a halt in Canadian visa processing from January 22 to the end of March.
UBS projects an EBIT of $199 million in fiscal year 2025, which would require a considerable improvement from the implied run rate in the second half of 2024. The firm had previously signaled that the consensus for fiscal year 2025 earnings was overly optimistic, with UBS's estimates being 13% lower than the consensus EBIT at that time.
Following the recent adjustments, previous consensus estimates for fiscal years 2024, 2025, and 2026 would need to be lowered by 8%, 21%, and 27%, respectively, to align with the revised UBS estimates.
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