Seek Ltd

SEK Details

Decent FY17 result: Seek Ltd (ASX: SEK), a diverse group comprising a strong portfolio of employment, education and volunteer businesses across Australia, New Zealand, China, South East Asia, Brazil, Mexico, Africa and Bangladesh, demonstrated an 11% growth in FY17 underlying NPAT of A$220.8m (excluding significant items & Early Stage Ventures). However, FY17 reported NPAT was below the FY16 NPAT owing to one-off gains that were higher in FY16. Reported revenue, on the hand, surged to A$1,036.4m over A$950.4m of prior corresponding period (pcp). The result led the total FY17 dividends to be 44 cents, which was 10% growth over prior corresponding period. Net operating cash flow was $280.4m compared to $334.9m last year.

ANZ business remained robust while offshore outcome was mixed: SEK’s Australia and New Zealand Employment witnessed revenue growth of 14% with EBITDA growth of 11% at the back of market leading position; and this sustained growth reflected benefit of reinvestment. At the international front, Zhaopin’s (New York Stock Exchange listed subsidiary) total revenue growth of 24% was noted while SEEK Asia is starting to realise reinvestment benefits and signs of gradual macro improvement. However, Zhaopin’s EBITDA was flat as high cost growth continued to be required to support the revenue growth. As indicated earlier by the group, process for privatisation of Zhaopin is progressing well and partnership with Hillhouse and FountainVest is expected to deliver strategic and operational benefits. In this regard, a transaction statement with the U.S. Securities and Exchange Commission has been lodged and an Extraordinary General Meeting of shareholders is to be held on 25 September 2017 to consider and vote on the proposed Merger. However, modest macro conditions and reinvestment led to an impact on earnings and this camouflaged the progress made in business model evolution for the international segment. As opposed to this, the Online Education Services (OES) witnessed strong student outcomes and solid financial results. The segment has seen healthy student outcomes and the teaching satisfaction rates have been at very high levels.
 

Early Stage Investments (Source: Company Reports)

Outlook and Stock Performance: For FY18, revenue growth has been said to be in the range of 20% to 25% with EBITDA growth of about 10%. Reported NPAT is expected to be in the range of A$220m to $230m before deducting investments in early stage growth options, and the impact of A$18m relating to share based payments and depreciation & amortisation has been accounted in. SEK stock has moved up 10.9% this year to date (as at September 21, 2017) at the back of a decent performance. However, the stock is trading at higher valuation given the price to earnings scenario. Further, the visibility over growth profile has become little subjective. Then the recent investments, higher costs for Zhaopin and costs associated with the start-up of new partner Western Sydney University at OES, seem to be dilutive to earnings. We believe that investors can now book profits on the stock and we give a “Sell” recommendation at the current price of $ 16.73


SEK Daily Chart (Source: Thomson Reuters)

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