Seek Limited

SEK Details

New CFO Appointed: Seek Limited (ASX: SEK) offers online employment marketplace services to candidates and recruiters, education services to working professionals and students and invests in early-stage ventures (ESVs) involved in human resource management. It operates Asia Pacific & Americas (AP&A), ESVs and SEEK Investments including, Zhaopin, Online Education Services (OES), and other ESVs. As of 11 March 2021, the market capitalisation of the company stood at ~$9.37 billion. Recently, SEK announced the appointment of Kate Koch as the company CFO and replaced Geoff Roberts.

Reduced Interest to 23.5% in Zhaopin: On 23 February 2021, SEK announced that it has entered into an agreement to reduce its 61.1% (undiluted) ownership interest in Zhaopin to 23.5% (fully diluted). With this deal, SEK intends to rebalance its portfolio exposure. It estimates net proceeds of ~560 million and an IRR of ~23%, representing a return of more than 5x with a 23.5% stake. The Board now intends to pay a dividend of 20 cents per share, following the receipt of Zhaopin deal proceeds.

1H21 Financial Results: For 1H21, SEK announced a fall in revenue by 6% YoY to $819.1 million. This fall in revenue was due to the lesser revenue growth of AP&A (12%) and SEEK Investments (2%) owing to the impact of COVID-19 on the markets. The SEK EBITDA declined by 1% YoY on pcp due to the operational improvements made and investment in strategic areas to facilitate growth. SEK registered an NPAT of $69.7 million, down by 8% YoY on pcp. Its NPAT included losses of $22.4 million from the ESVs of SEEK Investments. SEK generated net cash flows of $163.1 million from operating activities for 1H21. It held a cash and cash equivalents balance of $520.8 million as of 31 December 2020.

1H21 P&L Highlights (Source: Company Reports)

Key Risks: The company faces the risk of ongoing pandemic across its markets. SEK is exposed to the reduction in employment, hiring activity and job ad volumes. It is also susceptible to the risk of synergy from the acquisitions and investments made in new ESVs.

Outlook: As per FY21 guidance, the company expects the revenue to be ~$1,700 million, EBITDA ~$460 million and confirmed losses in SEEK Investments ESVs of ~$55 million. It estimates NPAT to be ~$100 million in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 SEK gave a positive return of 41.13% in the past six months and a positive return of 34.59% in the past nine months. The stock is currently trading above the 52-weeks’ price level of $11.23-$31.79. The stock of SEK has a support level of ~$26.149 and a resistance level of ~$28.037. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in % terms). For this purpose, we have taken peers like REA Group Limited (ASX: REA), Domain Holdings Australia Limited (ASX: DHG), Hipages Group Holdings Limited (ASX: HPG), to name a few. We believe that the company can trade at a discount compared to its peer median, considering its lower revenue in 1H21, fall in EBITDA, high debt levels, and the pandemic’s risks across markets and losses of ESVs estimated for FY21. Considering the company’s higher net cash flows from operating activities for 1H2, recently announced dividend of 20 cents per share, high ROE, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $27.0, up by 1.694% on 11^th March 2021.

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

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