Stock of the Day – SEEK (SEK )
SEK released its employment index for August with the data indicating a continuation of the good start to FY15. In August SEK’s new job ads rose 7.9% vs the previous corresponding period but declined 2.3% sequentially versus July. As a reminder new job ads are a good indicator of SEK’s total job ads (the key volume driver for the domestic employment business). On a seasonally adjusted basis new job ads grew 12.0% vs the previous corresponding period and 3.5% vs July.
Group Capex (Source - Company Reports)
We view SEK as a well-managed operator with solid prospects from its domestic employment business with strong growth from its international and education investments but believe this is fully reflected in the share price. SEK has a dominant market position with 64-70% market share of online job ads in the Australian market, however we see emerging threats including those posed by LinkedIn, aggregator sites (INDEED) and even casual job sites (Spotjobs).
SEEK EBITDA (Source - Company Reports)
SEK’s placements strategy could expand the addressable market but we believe the monetization strategy is uncertain. Therefore we expect long term jobs ads to grow on average at 2-3% pa vs 5-10% historically. Emerging markets growth is set to continue in our opinion (aided by acquisition of the JobStreet assets). We expect SEK to use growing Free Cash Flow to increase ownership in key offshore investments enhancing contributed growth while increasing strategic flexibility to expand further offshore.
SEK Daily Chart (Source - Thomson Reuters)
The growing cash flow coupled with capital management creates options to reinvest and/or return cash to shareholders. SEEK is a well-placed business with improving near term revenue momentum in its domestic operations, a strong learning business and expansive long term international growth opportunities. We believe the stock is expensive at its current price and would review the stock at a later date.
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