Treasure Chest: Seek

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

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

Jarden

The subject:

Seek ((SEK))

By Rudi Filapek-Vandyck

Shares in jobs platform Seek ((SEK)) are languishing in the low $20s, having put in a few brave attempts to rally towards the high $20s, but thus far failed on each occasion.

Analysts at Jarden suspect two worries are keeping the buyers at bay:

-the decline in job ads numbers in Australia and New Zealand
-lack of transparency regarding valuations inside the Seek Growth Fund

Regarding the first concern, Jarden points out the client mix has significantly changed since 2019 as the company has directed its attention more towards corporates and government.

The broker estimates SMEs will make up some 41% of Seek’s volumes in FY24, up from 25% back in 2019. Corporate & Government is forecast to represent 37% this financial year, up from 29% bin 2019.

In contrast, traditional recruiters will see their share decline to circa 22% from 46% in 2019.

It is Jarden’s view Seek holds a lot more pricing power over SMEs and corporate and government customers, leading to higher yield growth forecasts for the coming 3-5 years.

The broker is equally not as negative about the decline in volumes and has calculated, when adjusted for population growth, absolute numbers are only expected to decline by circa -5% in FY25 (next year). It’s the yield growth that will prove a lot more interesting, and more important too.

Regarding the Seek Growth Fund, Jarden acknowledges transparency is missing, but suggests if Seek were to take another writedown to the value of its investments in HiBob, Employment Hero and Go1, this might potentially already be priced in at the present share price.

Valuations for the Growth Fund are generally based on the latest funding rounds, explains the broker, and they do look “rich”.

More info:

What do the other brokers say?

Morgan Stanley is also upbeat on Seek and stressed at the February results the company remains geared to the eventual uptick in the employment market. 

The analyst also is more positive on the potential value accretion to shareholders from the Seek Growth Fund, estimating it could be worth $5-$10 per share. The Overweight weighting was retained with an upgraded price target of $31 from $28.50.

Macquarie is on the record as expecting listings to trough in the 2H24, in line with Seek management’s forecast, and grow further into FY25. This broker also highlighted a 10%-11% price increase from variable pricing in the results, so any further price rises would benefit  the bottom line. 

The stock was upgraded to Outperform from Neutral with a $29 target, up from $26.

Morgans highlighted expected growth from Asia in the 2H24, compared to the previous year and rated the stock an Add with a $27.30 target.

Over at UBS, earnings forecasts out to FY26 were downgraded on weaker volumes, but this broker considers there to be upside potential from greater yield growth in Asia longer-term. Buy rating and a $29.20 target.

Ord Minnett and Goldman Sachs remained more downbeat with respectively a Lighten and Sell rating, and target prices of $19 and $23.50, respectively.

Goldman Sachs views Seek as the most cyclical and leveraged stock in the classified platform operators’ sector, believing volume headwinds will be sustained across A&NZ and Asia going forward.

Ord Minnett dislikes the debt levels and states they are too high. This analyst is awaiting proceeds from the divestment of the Latin American businesses which was announced in January.

For More Treasure Chest reading:

https://fnarena.com/index.php/2024/05/31/treasure-chest-sims/

https://fnarena.com/index.php/2024/05/16/treasure-chest-xero/

https://fnarena.com/index.php/2024/05/06/treasure-chest-the-green-opportunity-in-worley/

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms