July was a great month for IDP Education shares…
The post Here’s why the IDP Education (ASX:IEL) share price jumped 15% in July appeared first on The Motley Fool Australia. –
The IDP Education Ltd (ASX: IEL) share price was on form in July.
The language testing and student placement company’s shares rose as sizeable 15% over the period
This means the IDP Education share price is now up almost 37% since the start of the year.
Why did the IDP Education share price storm higher in July?
There were a couple of catalysts for the strong rise by the IDP Education share price last month.
One of those was the announcement of a major new acquisition on the first day of the month. IDP Education revealed that it has entered into an agreement to acquire the British Council’s Indian International English Language Testing System (BC IELTS India) operations for 130 million pounds (~A$240 million).
This deal means that IDP Education will soon be the sole distributor of IELTS in the key Indian market.
In addition, the acquisition is expected to be significantly accretive to earnings. Management estimates that the transaction will be ~13% earnings per share accretive (pre-synergies) on a pro forma calendar year 2019 basis. It also sees scope for material combination benefits, with estimated run-rate synergies of A$6 million to A$8 million expected to be delivered within 24 months of completion.
What else supported its shares?
Also boosting the IDP Education share price was the positive reaction to the deal by brokers.
For example, in response to the announcement, Goldman Sachs retained its buy rating and lifted its price target on its shares to $35.00.
Based on the current IDP Education share price, this price target implies potential upside of 24% over the next 12 months even after last month’s gains.
The broker was a fan of the deal and suspects that it may not be the final acquisition the company makes.
Goldman commented: “In our view, the acquisition of BC’s Indian IELTS operations is an indication of IEL’s willingness to deploy capital toward synergistic acquisitions, and may pave the way for further transactions in other countries. While we take no view on any specific transactions, we move our target price methodology to DCF and apply an uplift of A$3.20 to our DCF to capture the potential value from further acquisitions. Our new 12-month TP is A$35.00 […] we reiterate our Buy rating.”
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.