Company Overview: SEEK Limited (ASX: SEK) operates an online employment marketplace across the Asia Pacific and Latin America. Headquartered in Melbourne, SEK employs over 3,000 people worldwide. SEK also operates various other businesses, including SEEK Learning, SEEK Business, and SEEK Volunteer. The company was listed on ASX in April 2005.

SEK Details

SEK Rides on Strong Fundamentals & Decent Outlook: The company delivered robust half-yearly numbers, with Zhaopin Online revenue increasing 9% YoY in 1HFY22, amid the ongoing COVID-19 restrictions. The strength of its revenue enabled the company to accelerate its investments and boost its expenditure on marketing, particularly in Asia. In addition, decent cash generation supported the company's long-term investment plans, providing financial flexibility and assurance to execute its strategic initiatives, including Platform Unification.

Growth Drivers; Analysis by Kalkine Group

Key Findings from 1HFY22 Results:

• Strong Operational Performance: The company reported total revenue from continuing operations of $517.2 million, up 59% on the pcp, aided by record job volumes and strong offtake in Asia.
  • Reported EBITDA from continuing operations for the period stood at $250.6 million, up 83% on the pcp, whereas its EBITDA margin expanded six percentage points (YoY) to 48%, driven by increased investments in products.
  • It had posted reported a NPAT of $124.2 million, an increase of 147% YoY. Robust top-line growth aided the company to improve its margin and accelerate investment, with major projects progressing to plan.
• SEEK Growth Fund: The company has contributed $128 million to SEEK Growth Fund. Portfolio value in 1HFY22 stood at $1,738 million, an increase of 17% year over year.
  • Early-Stage Ventures (ESV) portfolio delivered a look-through revenue increase of 72% on a year over year basis, whereas Online Education Services (OES) grew revenue by 13% on pcp.
  • The valuation uplift of the portfolio suggests new capital implemented into the Fund, mainly driven by new funding rounds in the HR SaaS idea. On 18 October 2021, SEK stated that the Fund had raised its first capital of $460 million, including an additional investment from SEK of ~$200 million.

• Liquidity Position: SEK had realised net proceeds of $359.2 million from borrowings during the period. SEK reported a cash balance of $312.0 million as of 31 December 2021. It had achieved an operating cash flow to EBITDA conversion of 94%. The company has declared an interim dividend (fully franked) of 23 cents per share. The dividend aligns with SEK’s capital management structure and suggests a pay-out of 75% of cash NPAT less capex.

Employment Marketplaces Highlight; Analysis by Kalkine Group  

Key Metrics: For 1HFY22, the company reported an EBITDA margin of 45.6%, higher than the industry median figure of 15.6%. In 1HFY22, the company recorded a net margin of 24.5%, higher than the year-ago figure of 15.4%.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 27.8% of the total shareholdings, while the top 4 constitute the maximum holding. Pinnacle Investment Management Group Ltd held the maximum number of shares with a percentage holding of 5.02%, followed by Bassat (Andrew Reuven) holding 3.87%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis: The company is vulnerable to certain risks such as risks associated with cyber security, information technology, credit availability, international expansion, and stiff competition. Further, it faces the risk of an ongoing pandemic across key markets, due to which SEK might reduce employment, job Ad volumes, and hiring activities. Also, regulatory risk, and shifts in consumer preferences add to the woes.

Outlook: The company expects to convert attractive opportunities in its core markets, thus aiming to grow revenue and expand margins over time. The company remains on track to leverage the improving economic conditions and structural changes in the labour market. Additionally, SEK has a high cash flow generation business model, which provides the ability to reinvest in its capabilities whilst also providing an ongoing stream of dividends, thus growing long-term shareholder value. For FY22, the company expects EBITDA (excluding significant items) to be in the range of $490 to $515 million, whereas revenues are expected to be between $1.05 to $1.10 billion. NPAT is estimated to be in the range of $230 to A$250 million in FY22.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~12.09% in the past six-months. Currently, the stock is trading below the average of its 52-week high and low levels of $36.09 and $25.84, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peers, considering the decent cash levels, robust operational performance, encouraging outlook, etc. For the purpose of valuation, peers such as Domain Holdings Australia Ltd (ASX: DHG), REA Group Ltd (ASX: REA), Hipages Group Holdings Ltd (ASX: HPG), and others have been considered. Considering the higher revenue base, robust customer base, product launches, positive EBITDA and revenue outlook in FY22, current trading levels, and upside in valuation, we recommend a ‘Buy’ rating on the stock at the closing market price of $28.10, up by ~0.035% as on 8 April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

SEK Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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