Stock of the Day – SEEK(SEK)

We believe that the value attributed to the international assets and growth strategy has been the most important driver of the SEK share price and valuation over the last 12 -18 months. This was demonstrated by 30% increase in SEK share price in the week following the announcement of the acquisition of the remaining 80% stake in Job Street. Zhaopin (ZPIN) in China has been a key part of the offshore growth strategy.
 




SEEK Domestic + International Numbers (Source – Company Reports)
 
The recent ZPIN IPO means that there is now a high degree of visibility over valuation for that asset, leaving the non-listed offshore businesses as the major valuation swing factor. Revenue growth in some of the key international markets has been slow or is showing signs of slowing down. Jobs DB revenue growth has been lacklustre for a couple of years now (HK and Singapore) and growth in Job Street’s core Malaysian business has also been slow.





SEK Revenue + EBITDA  (Source – Company Reports)

We believe this partly reflects the fact that these markets are already relatively developed. On this basis these operations should not necessarily be valued on high growth multiples. Even revenue growth in Brasil Online which has been strong to date slowed to 7% in 1H14. SEK’s offshore growth is increasingly going to be driven by some of its smaller/less developed markets. It is harder for smaller markets (by GDP) to move the dial in relation to overall SEK group.


SEK Daily Chart (Source – Thomson Reuters)
Some markets have large labor markets but the GDP per capita is low. We believe that these markets are more difficult to address/monetize and execution risk is higher. We believe this risk should be reflected in valuation multiples and is a key reason why both Zhaopin and 51Job trade on relatively low multiples vs developed market peers. SEK has strong competitive positions in its more developed markets. However we believe that there is more competition risk in markets that are still developing. We believe the stock is expensive at its current price and would review the stock at a later date.

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