Seek: Supportive conditions provide investment optionality

About the author:

Steven Sassine
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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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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