IDP Education (ASX: IDP) shares are up roughly 30% over the last week after the Australian government increased its overall student cap for international students by 9% to 295,000 in 2026. The higher-education component is about 197,000, with allocations for public universities to be finalized in October.

Why it matters: We expect further loosening of immigration policies in Australia and elsewhere, and IDP’s student volumes to rebound. Its destination countries rely on international students to support their higher education systems, contribute to a skilled workforce, and maintain their tax base.

  • The increased 2026 intake favors IDP in both numbers and speed of approvals. Australian public universities are capped at a combined 145,000 new international students in 2025, but as each university approaches 80% of their cap, processing approvals are considerably delayed.
  • The increased intake raises the level at which processing approvals could be delayed, likely leading to higher placements for IDP and benefiting its bottom line.

The bottom line: We maintain our $17 fair value estimate for narrow-moat IDP Education. Shares screen as materially undervalued, with the market understandably fixated on weak near-term student volumes. However, we maintain our long-term recovery thesis.

  • We believe current student caps are driven by transitory, policy-driven concerns. Aging populations in key destinations and rising demand from younger, emerging markets are key drivers, underpinning a structural recovery in international education and IDP Education’s long-term growth.
  • Its network effect is a key competitive advantage. Despite a weak backdrop, we forecast student placement fees growing by 13% in fiscal 2025, supported by better terms and higher commission rates as universities focus on high-quality students.

Business strategy and outlook

IDP Education is a global leader in education services, providing English language testing and teaching, student placement services, digital marketing, and education events.

The English language testing business is IDP’s largest business segment, comprising 47% of fiscal 2024 revenue. As part-owner of International English Language Testing System, or IELTS, IDP operates one of the world’s most widely accepted English language tests for access to education institutions, professional bodies, and visas. Over the past decade, IELTS has lost English proficiency certification exclusivity for most of the institutions where IELTS is accepted, leading to increased competition for test takers. With the acquisition of the British Council’s Indian operations, another part-owner of IELTS, IDP has set the stage for reduced competitive pressures in India, the world’s largest English language testing market.

Student placement services is IDP’s second-largest business segment, comprising 43% of fiscal 2024 revenue. Over the decade prior to the covid-19 pandemic, IDP’s student placement services business has also been IDP’s main engine for growth, with growth primarily coming from India as a fast-growing source country and the United Kingdom and Canada as fast-growing destination countries. Since the covid-19 pandemic and the ensuing temporary closure of Australia’s borders to foreign students, IDP’s Australian student placement business had shrunk by more than half. Although some of this volume has been picked up by other destination countries, IDP’s overall student placement business only recovered to pre-pandemic levels in fiscal 2022. Given that half of IDP’s prospective students find IDP through word-of-mouth, we believe IDP’s key near-term challenge will be to reignite demand for its student placement services.

IDP bulls say

  • IDP benefits from tailwinds including increasing international mobility and a growing middle class in the developing world.
  • Through its part-ownership of IELTS, IDP owns a stake in one of the world’s most widely accepted English language tests.
  • IDP operates one of the world’s largest student placement services with diversification across source and destination countries.

IDP bears say

  • IDP’s business is challenged by increasing isolationism and decreasing globalization.
  • The IELTS language test has been losing exclusive English proficiency certification licensing rights over the past decade and faces increasing competition.
  • IDP’s student placement business is challenged following Australia losing popularity as a destination country for prospective students due to repeated border closures.

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Terms used in this article

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.