Seek Limited

SEK Details

Update on Dividend Payment: Seek Limited (ASX: SEK) is an operator of online employments classifieds and education and training. The market capitalisation of the company stood at $7.65 billion as on 3^rd August 2020. Recently, the company announced that it has decided not to pay a final dividend for FY20 in order to preserve capital in an uncertain environment for financing its long-term growth strategy. However, the company will resume its dividend payment once the economic conditions improve. The company has also received proceeds from the issue of Subordinated Notes of $75 million. Moreover, the company has successfully redeemed all Senior Notes of $175 million and resultantly, the earliest debt maturity of the Borrower Group is now November 2022.

In the last two weeks of March 2020, SEEK ANZ and SEEK Asia witnessed sharp billing declines. In the months April 2020, the company witnessed a stabilisation of the rate in billing declines for these businesses in the ambit of -65% to -70% against pcp. During 1H FY20, the company reported decent operating cash flows of $250 million, which has created capacity for Capex and M&A (Merger and Acquisition).

Operating Cash Flows (Source: Company Reports)

Focus for Future: The company is focused on ensuring the long-term health of the business, and it is continuing to invest and execute against the key drivers which support its long-term aspirations.

Key Risks: The key risks include cyber security and business resilience risk, disruption and competition and economic conditions risk.

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

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As at 30^th June 2020, the company is operating within its debt covenants and possesses robust liquidity. The stock of SEK has provided a return of 29.99% within the last three months. The company is likely to release its FY20 results on 18^th August 2020. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). Thus, in light of the decent operating cash flows, excellent liquidity position and valuation, we give a “Hold” recommendation on the stock at the current market price of $21.180 per share, down by 2.261% on 3^rd August 2020.

SEK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Empired Ltd

EPD Details

Secured Two Contracts with Western Power: Empired Ltd (ASX: EPD) is a diversified IT services company with a market capitalisation of $64.08 Mn as on 3^rd August 2020. Recently, the company has inked two contracts with Western Power to provide a diverse range of digital services for up to seven years. These include an infrastructure managed services contract having a value of $31 million, wherein EPD will mainly provide end-user computing services to over 3,300+ Western Power staff and contractors. In addition, the company secured a preferred Master IT Supply Contract of $30 million for the provisioning of a technology enhancement program in support of the Managed services scope. During 1H FY20, the company secured a 3-year IT Supply contract with Rio Tinto. In the same time span, the company reported revenue amounting to $84.4 million, down by 5% over pcp, while NPAT for the period went up by 4% to $2.0 million.

Key Financials (Source: Company Reports)

Outlook: For FY20, the company is prioritising cash earnings and the reduction of CAPEX. The company is also focused on the execution of a plan to ramp up the Australian East Coast Expansion.

Key Risks: The company is exposed to a variety of risks, which could negatively impact the performance of EPD. These risks include general macro-economic risks, business risks, operational risks, and financial risks.

Stock Recommendation: Gross margin of the company stood at 91.7% in 1H FY20 as compared to the industry median of 74.8%. Debt to equity of the company stood at 0.49x in 1H FY20, which is in-line with the industry median. On a TTM basis, the stock of EPD is trading at an EV/Sales multiple of 0.5x, lower than the industry median (Technology) of 5.1x. The stock of EPD is also trading at a price to book value multiple of 1.0x as compared to the industry median (Technology) of 3.5x on TTM basis. Thus, considering the company’s recent contract, rise in H1FY20 NPAT and FY20 focus areas, we give a "Hold” recommendation on the stock at the current market price of $0.390 per share, down by 2.5% on 3^rd August 2020.

EPD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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