And You Shall Find… Value
SEEK has been able to successfully diversify its business away from Australia and New Zealand over the past five years. Its investments in China, South East Asia, Brazil and Mexico contributed 60% of group revenues and 45% of operating earnings (EBITDA) in FY19.
The company reported a first-half FY20 underlying net profit of $75.6m, or 21.5cps, versus Ord Minnett’s forecast of $72.8m, or 20.6cps. A fully franked interim dividend of 13cps was declared, below our 16cps estimate.
The result was delivered despite fears of macro-economic pressures ahead of the release. Even as the online classifieds businesses in Australia, Hong Kong and China came in weaker than expected due to slowing economic growth, this was offset by better growth in Zhaopin’s offline business, online education services and its early-stage ventures.
Zhaopin is China’s leading online employment website. With only 10% of online employers as customers, a forecast compound annual growth rate of more than 20% in the number of online employers in the country, and only about 10% of the population seeking jobs online, we believe it is still in the very early stages of continued hyper growth.
In Australia, employment has improved over the past couple of years post the jobs recession that followed the mining bust, although there is still room to improve further. We expect an accommodating monetary stance from the Reserve Bank to help drive further growth in employment classifieds.
We have lowered our FY20 revenue growth forecast to 10.1% year-on-year (YoY) and EBITDA growth to 3.5%. This compares to our previous 16.4% and 8.9% YoY growth estimates, respectively, and management‘s previous guidance of 15–18% revenue and 8–11% EBITDA growth, as we bake in the potential impact from the coronavirus (COVID-19). For FY21, however, our revenue and EBITDA growth forecasts have accelerated to 18.8% and 16.8% YoY, respectively, from 15.3% and 16.1% previously.
We continue to believe in the seasoned management’s investment acumen as SEEK continues to generate sustained growth from organic investments. Despite the expected short-term impact from COVID-19, we maintain our Accumulate recommendation with a target price of $25.00 as we expect growth to accelerate again once the epidemic is behind us, and we recommend buying the stock on any virus-related headline weakness.