Between 2007 and 2008 education exports – foreign students in Australia – leaped ahead of tourism as the leading service export in our economy.  Between 1990 and 2010 the value of education exports doubled every year, according to a 2012 report prepared for the education lobby group Universities Australia.
By 2015 education exports moved into the number 3 spot on the list of Aussie exports, with a total value of $18.8 billion and a 5.9% share of the total value of all exports.  Within a year, the numbers rose to $22 billion and 6.7% share of the export market.  The latest figures reveal the number of foreign students grew 13% year over year with more than 190 countries sending approximately 550,000 students to study in Australia, according to the Department of Education and Training.
The explosive growth is not unique to Australia, with other English language countries experiencing similar results.  English has become the de facto International Language of business, attracting droves of non-English speaking students to learn the language and study in English language universities.  In 2015, US based research firm Global Research created a chart putting a dollar value on the size of this market.
Figure A: Current and Projected Internationally Mobile Student Market Value (in US dollars)

We live in a tumultuous world at best, with global events over the last year impacting the international student market, enhancing opportunities for the four ASX listed stocks in the sector – Navitas Limited (NVT); IDP Education Limited (IEL); Redhill Education Limited (RDH); and Academies Australasia Group Limited (AKG).
The anti-immigrant wave that helped propel the Brexit vote is creating a growing perception the UK is not as welcoming a place for immigrants as it once was.  The populist revolt in the US shocked the world with the election of Donald J Trump as US president.
One of Trump’s first actions was to announce a travel ban on residents of seven countries.  That led Rod Jones, then the CEO of our top education export stock, Navitas Limited (NVT) to proclaim the following:
• ‘There’s a whole lot of uncertainty in the US at the moment. What that means is probably anybody’s guess, other than students starting to back away from the US because of their concerns about potential issues they may face.’
In reality, Trump’s travel ban has spent more time in the courts than as a policy in place but has contributed to the belief the US is turning its back on foreign workers and students in favor of native born Americans – of which there are few as that country has been populated by immigrants since its inception.  
Restrictions on foreign workers through the US H1-B Visa program is yet another tenet of Trump’s “America First” policy troubling potential international students.  The pathway envisioned by many of the world’s best and brightest students – especially those in the technology sector – has been earning a graduate degree from a prestigious American university followed by a job placement in the US.  Foreign workers are attractive to US companies, not just for their academic prowess, but also because they are willing to work for less than comparable American candidates.  This pathway is prevalent enough to attract high school students from across Asia to US schools in the hopes of getting into a better university.  China sends more students to the US than any other country and while US-China relations appear stable now, the threat of a trade war still exists.
Add to the toxic mix gun violence in the US and the anti-immigrant posts flooding social media and internet websites that can be translated or read by international prospects with minimal English skills, and the stage is being set for the US to lose its dominance as the place to go for an English language education.  Who wants to go to school in a country where they believe, true or not, they are not wanted and are not safe?
The beneficiaries of these developing events are likely to be universities in Australia and Canada.  Australia had the edge with Chinese students but recent events here are troubling.  In late July, anti-Chinese flyers began popping up on two university campuses in Melbourne, with coverage of the issue spreading in Chinese social media.  There are concerns the Chinese government may be influencing their students here to challenge Western norms.
In mid-October abc.net.au reported an unnamed senior foreign diplomatic official making the following statement:
• ‘Australia is giving China what it wants in terms of education for its students – so it’s time for the Federal Government to insist the Chinese comply with Australia’s values and interests,’ a senior foreign diplomatic figure told the ABC.
Right now, Australia ranks third in international student enrollment with Canada close behind and ramping up its efforts to attract foreign students.  The American Association of Collegiate Registrars and Admissions Officers did a survey of International applicants for Fall 2017 at 250 US schools.  The results suggest something other than a mass exodus, with 35% of the schools seeing an increase and 39% reporting a decline.  Figures for students that showed up for the Fall are not available as many schools in the US begin in early October.  Multiple articles from multiple sources suggest an unclear picture, with many top tier schools reporting increases or no change and lower tier schools reporting some decline.
In contrast, the Toronto Globe and Mail reported “unprecedented numbers of international students this fall, with some institutions seeing jumps of 25 per cent or more.”  The University of Alberta in Western Canada saw an 82% increase in international graduate students applying and 27% more undergraduate applications from foreign countries.  Not surprisingly there are more American students choosing to live in Canada.
The reasons go beyond the perception of Canada as a safe and welcoming country.  The cost is lower; the application and enrollment process is simpler; the visa process is easier; and perhaps most significantly, the Canadian government makes it easy for graduates wishing to stay in that country and get a job.Of the four ASX stocks in the sector, two offer educational opportunities primarily in Australia with minimal global presence, with the other two extending their reach into multiple countries.  All offer “pathways” support, which is guidance provided to international students to select and enroll in an appropriate English language college or university.  Pathways include English as a second language training to enable passing a required English language equivalency test for academic admission.  Here in Australia such training is called English Language Intensive Courses for Overseas Students, or ELICOS.

The following table looks at the share price performance of the four year over year.

Should Canada continue to grow as an alternative to US institutions, IDP Education (IEL) has a major competitive advantage with its partnership arrangements with more than 30 Canadian colleges and universities, many top-tier schools.  In contrast, Navitas Education has two Canadian partners.
IDP was spun off from Seek Limited (SEK), debuting on the ASX in November of 2015 and dramatically outperforming larger rival Navitas to date.

Unlike its rivals, IDP does not operate any colleges or universities, but does have ten ELICOS locations in Cambodia, Thailand, and Viet Nam. In business since 1969, IDP now has 89 placement centres and offices in 32 countries.  IDP offers students pathways to 35 different colleges and universities in Canada and more than 100 in the US.
Beyond its extensive global partnership network, IDP has another significant advantage over its competitors.  The company is part owner of IELTS (International English Language Testing System), an English language equivalency test once used primarily in British Commonwealth countries, but now seeing increasing acceptance with US institutions.  This revenue stream ensures the “cash register” rings at IDP every time an international student sits down anywhere in the world to complete the IELT exam.
In January of this year the company acquired the Hotcourses Group, an operator of several global websites for searching educational opportunities.  The two companies will continue to operate independently while developing a strategy for taking advantage of the strengths of each.
Navitas shareholders have had some rough years, beginning with the 2014 announcement that Macquarie University cancelled its contract with Navitas, opting to independently offer pathways for international students.  The relationship spanned 18 years and the stock price plunged in response to the news.

The stock price took another dive in March of this year when investors learned the company had lost some of its government funded AMEP (Adult Migrant English Program) contracts.  The company’s co-founder and longtime CEO has retired with a new CEO coming on board in March of 2018.  
Unlike IDP, Navitas operates its own schools offering education in media technology along with pathway partnerships around the world, with numbers that pale in comparison to IDP – two in Canada and seven in the US.  The company also offers ELICOS and vocational training.
The company’s Full Year 2017 results saw revenues decline from $939 million to $885 million with net profit falling from $90 million to $80 million.  In sharp contrast, rival IDP saw revenues increase from $358 million to $391 million with net profit going up from $40 million to $42 million.
Redhill Education (RDH) and Academies Australasia (AKG) may be small but both turned in banner financial results for FY 2017.  Redhill’s revenue jumped from $28 million to $42 million while net profit went from $300 thousand to $1.7 million.  Academies stock price turned in the best performance of the sector, with strong financial results as well.  Revenues rose to $58 million from $55 million and profit rebounded from a loss of $4.2 million to a gain of $3 million.
Redhill operates its own schools in Australia where it offers vocational and higher education courses in English language, digital technologies, and interior design.  The company also operates GoStudy Australia, its own recruitment agency operating out of Europe to enlist international students in its Australian schools.
Academies Australasia Group (AKG) has been around for more than a century and operates 18 colleges in Australia and Singapore offering vocational and English language training.  The company also offers pathway programs to a small number of partner schools.  
Some investors may still have a sour taste in their mouths following the disastrous scandal in government funded vocational education that brought down notable ASX stocks like Vocation Limited and Australian Careers Network.  Yet the exploding middle class in emerging countries looking for better educational opportunities in English speaking countries warrants a look at the four ASX stocks exposed to the international education market.  Although the decision by Macquarie University to go off on its own has not yet sparked an exodus of universities and colleges from their partnership arrangements with these companies, that is a risk to keep in mind.

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