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Seek(ing) Out Opportunity in Asia

Australia | Mar 30 2023

This story features SEEK LIMITED. For more info SHARE ANALYSIS: SEK

Despite facing the cyclical lows that accompany a slowing employment market, opportunity remains on the horizon for Seek as it continues to tap into the large, and rapidly growing, Asian market. 

-Seek to host first investor day in more than a decade on April 4
-Analysts anticipate the company will speak to opportunity in Asia
-Slowing employment market a concern, but Asia could offer a blueprint on optimising yield

By Danielle Austin 

With Seek ((SEK)) set to host its first investor day in more than a decade, analysts are expecting the company to address the opportunity on offer in the Asian market. 

In Jarden’s (Overweight, target price $29.60) opinion, the market continues to underestimate the opportunity open to Seek in the Asian market, and the broker believes should more visibility around this opportunity be provided at the impending investor day it could prove a catalyst for upwards earnings revisions. 

Today, the company’s Asian operations contribute 20% of total revenue and 15% of total earnings. However, as of 2021, not only did the Asian market offer a total population fifteen times the size of the Australian and New Zealand and a labour force eighteen times the size, says Jarden, it was also growing at a faster rate. Further, internet penetration in some emerging Asian markets is just half that of domestic markets, and leaves a runway of growth. 

As such, the broker points out the long-term opportunity for Seek’s Asian operations is significantly larger than what is on offer in the domestic market should Seek execute on the opportunity. Nearer-term, however, the broker expects Asia to bring in less than half of the revenue and less than a third of the earnings of the A&NZ market in FY23.

Also expecting the Asian market to be a key focus of Seek’s investor day, Goldman Sachs (Sell, target price $22.60) reminded investors that in 2019 the company estimated the total addressable Asian market to be valued at $805m, but that successful execution could see the value of this opportunity double to $1.6bn. 

However, despite the sizeable opportunity on its doorstep this broker does remain cautious on the stock. Goldman Sachs considers Seek to be the most cyclical stock amongst its classifieds coverage, and expects the company will face both volume and depth headwinds in a normalising labour market. 

Cyclical employment market looks to slow

Since the company reported interim results in February, focus has been on how the employment market is likely to move looking forward. As noted by Ord Minnett (Hold, target price $22.80), while the Australian and New Zealand markets both benefited from ongoing job market tightness in the first half, early signs are already emerging that suggest slowing growth in the domestic markets and in Asia. 

While revenue in Australia over the first half lifted 19%, points out Ord Minnett, this is a notable deceleration from 40%, 72% and 95% growth achieved in the three preceding quarters. The broker anticipates this slowing will continue over the latter half of the fiscal year.

While the overall first half result was better than Macquarie had anticipated, this broker (Neutral, target price $23.50) pointed out the weaker domestic volumes did see Seek refine its full year guidance to the lower end of range, with solid yield performance in Asia not enough to fully offset. 

This broker feels performance in Asia could prove a good case study for Australia and New Zealand in how to optimise yield from budget-based contracts. Further, it notes the A&NZ cost base remains at record highs, with the company suggesting its preference is to continue to invest.

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