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How to invest in the international education boom

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Key statistics: ASX: IEL

Closing share price 27.09.17: $5.630 52-week high: $6.040 52-week low: $3.670 Most recent dividend: 5.5c Annual dividend yield: 2.21% Franking: 155%

The education of international students is now Australia's third largest export. One high-quality business that has successfully leveraged off this growing industry is IDP Education (ASX: IEL). IDP is a global leader in international student placement services.

IDP's results for the 2017 financial year showed continued strong momentum in the core English testing and student placements businesses.

international students uni school college esl IDP Education (ASX: IEL) ielts

In the English language testing business, volumes increased 9% in the six months to June relative to the same period last year.

In the student placements business, volume placed into Australian institutions grew 4.2% in the six months to June while placements into international institutions grew 20%.

The results showed continued momentum on domestic commission rates with average revenue per placement increasing 10.4% in the six months relative to the previous year. The company renegotiated contracts with 15 universities during the year. This should see good yield growth continue into the 2018 financial year.

The performance of the Hot Courses business, which was acquired at the end of January, is also worth noting.

Hot Courses runs tertiary institution and course information websites. It primarily generates revenue from the sale of advertising space on its websites. However, it also sells subscriptions to universities in which data on visitor traffic to the pages relating to that university's courses is provided for lead generation.

In the 2018 financial year the outlook for testing and placement volume remains strong. While the continued appreciation of the Australian dollar will dampen revenue growth to some extent, it will also reduce costs denominated in foreign currency.

IDP will begin to roll out its new computerised testing product later this year. This has the potential to cause some near-term disruption but it is an important milestone in ensuring the competitiveness of the IELTS (English language testing) product and its ability to meet the needs of a range of consumer preferences.

While there will inevitably be other factors presenting headwinds to the outlook, 2018 looks like another year of good progress for the company.

The Montgomery Fund and the Montgomery Private Fund own shares in IDP Education.

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Roger Montgomery is founder, chairman and chief investment officer of Montgomery Investment Management. Following a successful career as an analyst and public company chairman, Roger published the first edition of his stock market guide, Value.able, in 2010, becoming an Australian best seller in just 16 weeks. He holds a Bachelor of Commerce and is a senior fellow of the Financial Institute of Australasia.
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