Company Overview: SEEK Limited (ASX: SEK) operates an online employment marketplace across the Asia Pacific and Latin America. SEK employs over 3,000 people worldwide and connects employers and candidates for job related and other services. SEK also operates various other businesses, including SEEK Learning, SEEK Business, and SEEK Volunteer. The company was listed on ASX on April 19, 2005.

SEK Details

Higher Investments & Increasing Customer Base Aids SEK: The company has a high cash flow generation business model, which provides the ability to reinvest in its capabilities, provide an ongoing stream of dividends, and enhance the long-term value of its shareholders.

A Glimpse of Sales Revenue from Employment Marketplace in 1HFY22: 

• Australia and New Zealand (ANZ): In 1HFY22, revenue from ANZ depicted a rise of 72% year over year, with an EBITDA growing 94% on pcp basis. The positive results can be attributed to record high Job ad volumes and higher depth adoption, with Premium Ad and StandOut Ad revenue doubling on pcp basis. During the period, the company remained on track with completing a new contract and pricing model across ANZ, along with expanding its product suite to optimise value for its candidates and hirers.

• SEEK Asia: SEEK Asia revenue went up by 42% on a year over year basis on a constant currency basis, driven by higher volumes. Depth revenue depicted a rise of 70% and accounted for ~23% of revenue in 1HFY22. With the Platform Unification project remaining on track, unveiling a large-scale brand refresh ad campaign and acquiring a minority interest in JobKorea, SEK stands to progress well on its key strategic priorities.

• Latin America: Under this, revenue from Brasil Online went down by 12% on pcp, on a constant currency basis, owing to economic and geopolitical tension. OCC revenue, on a constant currency basis, depicted a rise of 34% YoY in 1HFY22, primarily due to increased depth penetration.
  

• Platform Support: Revenue under this segment depicted a rise of 32% on year over year basis. Platform support comprises (1) an online employment marketplace, which aids SEK in growing its ad scale and supports new product development, (2) JobAdder, a talent acquisition suite that streamlines the hiring procedure and (3) a Certsy, a platform that securely verifies and share work credentials.

Financial Highlight; Analysis by Kalkine Group  

Key Metrics: For 1HFY22, the company reported a ROE of 6.9%, higher than the industry median figure of 0.5%. In 1HFY22, the company recorded a net margin of 24.5%, higher than the industry median figure of 7.1%.

Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 27.97% 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 faces the risk of expanding in new markets, cyber security threats, technological shifts, and macro headwinds.
• Further, it faces the risk of an ongoing pandemic across key markets, due to SEK might experience reduced employment, job Ad volumes, and hiring activities.
• Also, regulatory risk, and shifts in consumer preferences add to the woes.

Outlook: A decent cash generation is expected to support the company's long-term investment plans, providing financial flexibility and assurance to execute SEK’s strategic initiatives, including Platform Unification. SEK expects FY22 EBITDA (ex-SEEK Growth Fund and significant items) in the range of ~$490 million-$515 million and revenue between ~$1.05-$1.10 billion, anticipating improved market conditions and lesser volatility due to COVID-19. NPAT (excluding significant items) is estimated to be in the range of $230 to A$250 million in FY22. To conclude, the company has an attractive opportunity in its core markets and is well-positioned to leverage the improving economic conditions and structural changes in the labour market. 

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 ~36.35% in the past six-months. Currently, the stock is trading close to its 52-weeks’ low level of $22.09. 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 TPG Telecom Ltd (ASX: TPG), REA Group Ltd (ASX: REA), and Hipages Group Holdings Ltd (ASX: HPG) have been considered. Considering the above-mentioned factors, robust customer base, product launches, growth in top-line, increased job ad volumes, 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 $22.23, down by ~0.447% as on 10 June 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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