The share price of SEEK Limited (ASX: SEK) will be in focus today after the company reported its financial results for the six-month period ending December 31 2016. Below is a summary of the results.
- Total revenue up 1% to $487.9 million
- Reported EBITDA (operating income) of $170.3 million, down from $193.3 million
- Profit excluding significant items and early stage ventures of $113.6 million, up 11%
- Zhaopin grew revenue 23%, SEEK is moving to privatise business
- Net debt stood at $234 million
- Interim dividend of 23 cents per share, up 10%
- Confirms FY17 guidance for net profit of $220 million, at top of prior range
This looks another reasonable result from SEEK as it continues to invest heavily in early stage ventures for long-term growth and in response to the rising competitive threats from the likes of Indeed and LinkedIn.
Somewhat oddly SEEK's management likes to present its "underlying" results excluding amounts being invested into the business for early stage ventures, which in my opinion are part of the normal course of running a business and should not be excluded. So not allowing for the exclusions the reported EBITDA figure of $170.3 million is disappointing, but it's hard to argue with the superb long-term track record of SEEK's management.
The highlight of the result is probably the performance of the Australian business, which achieved revenue growth of 13% and EBITDA growth of 10% as SEEK shows the benefits of reinvesting in the business.
The 10% lift in the interim dividend also demonstrates the underlying strength of this business, despite it currently being in a reinvestment stage.
The lowlights are predictably the performances of SEEK Learning and its Brazilian business which should come as no surprise to investors. Given the depth of the economic crisis to hit Brazil for EBITDA to only fall 9% to $16.4 million is a respectable result. Mexico also disappointed in a result the group blamed partly on the election of U.S. president Donald Trump.
The jewel in SEEK's crown of international businesses is now clearly its China-based Zhaopin website that grew revenues and EBITDA an impressive 23% and 20% respectively.
Total EBITDA was $41.8 million and the business has now delivered 10 consecutive quarters of 20%+ revenue growth in online revenue which goes to show why this is such a hot asset that the group wants to remove from public ownership.
Despite a subdued six-month period for SEEK's international businesses overall they still retain some excellent long-term growth potential in the hands of a proven management team.
Outlook
SEEK has some powerful competitors and therefore needs to invest heavily in its products and platforms to retain its strong competitive positions in its markets of operation. In particular the Chinese business is performing strongly and given its competitive position it retains a big growth outlook in my opinion.
Although given that SEEK is not really growing for now due to all the reinvestment it does trade on a lofty valuation at around 25x analysts' estimates for full year earnings per share. Still if you buy into the idea that this business retains excellent long-term growth potential it is probably at reasonable value under $15.50.
