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Market Price: $20.50
Market Cap: $7b
Business Overview
Seek (ASX: SEK) is one of the original dot-coms in Australia. The company was first formed in 1997 at the infancy of the dot.com boom by Melbourne brothers, Andrew and Paul Bassett, along with Matthew Rockman of the Rockman women’s fashion family. Andrew Bassett remains as a director and is CEO of the company. The company was conceived to take advantage of the growing online classifieds space, specifically, online job ads. SEK’s flagship business is seek.com.au, closely followed by its biggest growth business Zhaopin (based in China) with complementary brands throughout South East Asia. Overall, the company has operations in 18 separate countries, with exposure two 2.9 billion people and relationships with 1.1 million hirers.
COVID-19 Update
In April SEK’s management released a COVID-19 related trading and capital management update to the market. SEK withdrew their full year guidance, announced in February, with management stating that the “Virus has now been felt in all markets in which SEEK operates”. They withdrew previous comments on expectations for SEK’s global employment business, however excluded Zhaopin, as China had started to move into a post COVID-19 operating environment. If recent trends with Zhaopin continue, SEK believes they might outperform estimates due to a quicker recovery.
SEEK Group (excluding Zhaopin)
- For the first 8 months of FY20 (up to the end of February 2020), SEEK’s unaudited financial results were in line with its original FY20 outlook.
- During March 2020, they experienced an increasing rate of billing declines as the month progressed which coincided with phased government restrictions in response to the Virus.
- In SEEK ANZ and SEEK Asia, they experienced the following billing results (vs pcp):
- In the week ended 22 March 2020: Billings were down -40%
- In the week ended 29 March 2020: Billings were down -60%
- Billing declines have since stabilised
- Online Education Services: Performing well and has not been negatively impacted as a result of the Virus in the period to 31 March 2020.
- Early Stage Ventures: SEEK Investments ESVs have adapted quickly to the challenging conditions and reduced their cash flow burn.
Zhaopin
- For the month of February 2020, billings were 60% lower than originally anticipated which was broadly in line with the high-level assumptions in SEEK’s FY20 Half Year Results Presentation on 25 February 2020.
- Despite this sharp decline in billing, Zhaopin delivered an EBITDA result ahead of preVirus expectations due to prudent cost management.
- For the month of March 2020, as China has started to return to more normal conditions, Zhaopin’s billings have improved and performed ahead of the 30% billing decline included in the example presented in SEEK’s FY20 Half Year Results Presentation on 25 February 2020.
Capital Management
Management announced in April that they would be deffering the 1H20 interim dividend given the potential impacts arising from thenCOVD-19 shutdown.
“Deferring the dividend was a decision that we did not make lightly. The level of uncertainty arising from the Virus has prompted us to take a prudent approach to managing our cashflow and balance sheet.” - Seek CEO and founder Andrew Bassat
As at 31 December 2019, SEEK’s Group Net Debt was A$895m. SEEK recently refinanced its syndicated loan facility in January and issued a Floating Rate Subordinated Note in December 2019, raising $150m. SEEK is operating within its debt covenants, has strong liquidity (A$395m of undrawn facilities at 6 April 2020) and no near-term debt maturities (after refinancing in Jan, their earliest maturity is the 30 November 2022 tranche).
Management are currently implementing a series of initiatives to manage the balance sheet and cash flow to ensure strong, long-term, fundamentals. These include:
- Operational measures; reducing non-essential costs and prudent labour management.
- Capital allocation; Reducing capital outflows for Mergers and Acquisitions.
- Liquidity Measures; drawing down on debt facilities to manage liquidity needs.
- Dividends; deferring the payment of 1H20 dividend.
Outlook
Despite the tough times and major disruptions from the COVID-19 shutdown (billings down roughly 60% in each geography during shutdown periods) we believe that SEK will recover strongly as the global economy start to open up. The Zhoapin business continues to lead SEK’s other divisions as China was the first to shut down, and thus the first to begin recovery. SEK’s management have previously stated their visions is to achieve $5b in revenue by 2025, this goal will now have to be pushed back by a few years, but is still achievable over the long term. It is our view that when the pandemic subsides, as it will, job creation will be at the core of economic recovery. This aligns directly with SEK’s business model, stating they have the capabilities to help facilitate the economic recovery process in all markets they operate in.
“The near-term economic challenges will impact SEEK’s short-term profitability. They will delay, but not fundamentally change our long-term aspirations. Our focus remains on executing against our existing long-term growth strategies and developing new employment and education solutions to meet the needs of our customers in the months and years ahead. We expect our long-term focus to unlock large new revenue pools and create significant long-term shareholder value.” - Seek CEO and founder Andrew Bassat
Key Financials
| EPS | 0.54 | 0.26 | 0.21 | 0.5 |
| EPS Growth | -7% | -51% | -17% | 128% |
| Yield | 2.70% | 0.90% | 0.60% | 1.60% |
| P/E | 32x | 66x | 79x | 35x |