Has NextEd (ASX:NXD) been sold off unfairly?

NextEd (ASX:NXD) is down over 40% in the past 3 months. And it is not for no reason – investors are scared that less people will take up courses that NextEd provides, in light of a recent crackdown by the government on student visa rorting. Have investor fears been overdone?

Introduction to NextEd

NextEd is a group of 10 private tertiary education businesses and a global international student recruitment agency. It has campuses all over Australia – 4 in Sydney, 2 in South East Queensland and one each in Melbourne, Perth and Adelaide. These aren’t just classrooms for lectures. They offer facilities such as kitchens for those studying hospitality and cookeries as well as a mock-up aged care teaching lab at its Brisbane campus.

NextEd delivered a record performance in FY23 with $102m in revenue (more than double in a year) and a $5.5m profit. This was delivered by international students returning to Australia. Enrolments in International Vocational courses were up 202% and English language students increased 425%.

It has big plans for the future, investing $6.1m in capex in FY23 and planning for $12.5m in FY24. This will be spent on larger campuses to support the expected growth in student numbers.

Is the golden run ending?

Despite the good FY23 results, NextEd shares have been smashed in recent months. This has been all due to changes in visa rules by the federal government. Starting on September 2, the COVID-19 pandemic visa (the 408 visa) was closed to new applicants. Existing applicants were permitted to seek a six-month extension of their visa for a $405 fee but the program would close for good after that. The program was introduced during the pandemic to give students stranded in Australia the right to work – which the visa does for 12 months.

But by mid-2023, around one in six international students on an ordinary student visa jumped to it and there were fears that the system was being gamed as a way to access full time work. Up to 120,000 people accessed the visa over its existence. It remained implemented despite borders re-opening in light of skills shortages until the Albanese government ended the scheme. There were other visa changes including students needing to prove they had at least $24,500 in savings and being stopped from enrolling in a second course in the first 6 months.

In many cases students were enrolling in a 2nd course which would typically be a VET course, the type run by NextEd, and they may have dropped out of their 1st tertiary course.

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Will NextEd be impacted?

Most likely it will. But the company and its investors are at loggerheads over whether it will be good or bad. Obviously investors fear it will be bad. But the company thinks it could be a growth opportunity.

The company said it would target markets less impacted by 408 Visa demand as well as people on the visa now but coming off it. But the company assumed in its FY24 guidance that the 408 visa would stay in place for the entire year and admitted the impact was difficult to quantify at this time.

Also keep in mind that new enrolments in the June quarter were lower than the Marc quarter following non-stop growth since the September quarter. NextEd had told investors that its first half revenues would be $59-$63m (35-44% higher than 1HY23) and the second half would be higher still.

It remains to be seen if it will be achieved, but if even the company is not confident, it is difficult to see how investors can be.

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