Seek: Supportive conditions provide investment optionality
About the author:
- Author name:
- By Steven Sassine
- Job title:
- Associate Analyst
- Date posted:
- 16 February 2022, 9:25 AM
- Sectors Covered:
- Diversified Financials
- Seek's (SEK) 1H22 result was a ~4% topline beat to consensus with revenue from
continuing operations up 59% on pcp to A$517m. EBITDA of ~A$251m (+83% on
pcp) and NPAT (ex significant items) ~of A$124m (+14% on pcp) were ~9%/20%
above consensus respectively.
- It was a very strong performance from SEEK ANZ (EBITDA +94% on pcp to
~A$255m), driven by record job ad numbers and depth penetration (depth revenue
+93% on pcp). SEK’s share of AU placements rose to 34.3% (vs 29.8% at FY21).
- With supportive business conditions expected to continue into 2H22, SEK
upgraded EBITDA guidance by ~16% (at the midpoint) on assumed revenue of
A$1.05bn-A$1.10bn (vs A$950m-A$1bn previously). NPAT guidance (now
A$230m-A$250m) was upgraded by ~23% at the midpoint. These buoyant
conditions saw SEK accelerate product/platform investment initiatives in the 1H
and we expect this ramp up to continue in the near term.
- We lift our FY22F/FY23F EPS by ~4% factoring in the upgraded guidance. Our
target price rises (Morgans clients login to view) on the above changes and further
revisions to our medium-term topline/margin assumptions. Hold maintained.
A strong core domestic performance
SEK released a very strong 1H22 result that was a ~4% topline beat to consensus (Visible Alpha), with revenue from continuing operations up 59% on pcp to A$517m. EBITDA of ~A$251m (+83% on pcp) and NPAT (ex significant items) of ~A$124m (+14% on pcp) were 9%/20% above market consensus respectively. A 23cps interim dividend was declared. FY22 EBITDA guidance was upgraded to A$490m-A$515m with NPAT now expected to be between A$230m-A$250m.
The details
SEEK ANZ benefited from a buoyant domestic job ad listings environment (average monthly unique candidate visitors +6% on pcp and hirers +30%) with revenue +72% on pcp (49% volume/21% yield/2% non-job ad depth growth) to A$383m, with EBITDA broadly doubling on pcp to ~A$255m. EBITDA margin expansion of 600bps to 66% allowed for an acceleration of SEK's investment timeline, bringing forward product/platform investment initiatives (e.g. marketing ramp, platform unification, reducing corporate/SME friction). This spend is expected to continue into 2H. SEK's share of AU placements increased from 29.8% at FY21 to 34.3%.
Despite 11% growth in SEEK Asia EBITDA, the 600bps margin decline was similarly due to elevated marketing spend (e.g. regional rebranding campaign) and product investment.
In SEK's other businesses, investment and eco/geopolitical issues weighed on margin performances. Zhaopin's (23.5% stake) 50% fall in EBITDA to RMB189m (11% margin decline) was also driven by competition/investment, whilst Latam saw a weaker Brasil Online performance offset by a better OCC EBITDA outcome.
SEEK Growth Fund saw a valuation gain of ~A$257m (~A$1.7bn as at Dec-21) post deploying A$266m of capital, although expecting recent public market weakness (particularly high growth) to flow into private markets/valuation multiples.
Forecast and valuation update
We lift our FY22F/FY23F EPS by ~4% on revised guidance. Our target price increases (Morgans clients login to view) on the above changes and factoring in a more buoyant listings environment overall in the near-term driving topline growth.
SEK's underlying performance remains robust with record domestic listings and candidate shortages driving increased reliance/utilisation of SEK's products. Whilst these favourable conditions are expected to continue near term, margin upside will be tempered to a degree by the pull forward of investment. Hold maintained.
Risks
Upside risks to our recommendation include: strong domestic yield increases, Growth Fund uplift, M&A. Downside risks include competitive intensity; the rolling off of current supportive market conditions, investments not producing desired ROI/investment costs higher than anticipated.
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