Online recruitment advertising business Seek announced an expected big drop in profits during the week as the jobs market around the world is in turmoil because of COVID.
Seek’s annual earnings were down more than 9 per cent to a net loss of $111.7 million although revenue for the group edged slightly higher to $1.5 billion.
The biggest hit to profits came via a $200 million write-down of its businesses in Brazil and Mexico. The recruitment giant has already cancelled its final dividend in an effort to fortify its balance sheet, saying that shareholders could expect distributions to return, once economic conditions improve.
Seek is a bit of a market darling so I asked my expert panel on The Call (midday AEST weekdays on Ausbiz), Andrew Page from Strawman.com and Michael Wayne from Medallion Financial Group to give their takes on the company as an investment.
Michael thinks it’s a very high-quality business despite the poor offshore performance in Latin America.
“The overseas operations will start to outweigh the domestic operations. At the moment, the revenue from overseas is more or less the same as it is from domestic, but the domestic operations have higher margins.
“Over time, as the overseas businesses mature, we think it would be a key driver for its growth. It owns the largest or second-largest job classified website in 7-8 different emerging markets ranging from Mexico to Southeast Asia. Obviously, the populations are significantly larger in those nations than what we have in Australia. So a long term thematic hasn’t really changed, and we still like it.”
“We wouldn’t necessarily buy it today, but on further weakness, around $18, we will be happy to buy this.”
Andrew agrees with Michael and believes it’s a great long term story.
“It’ll probably take two years for the earnings to fully recover but the value of a business is based on it’s the entirety of its future cash flows. It’s a very resilient business and it’s got a very strong market position and incredibly strong leadership.
“The trouble I have with this is that I’ve always kicked myself thinking what a great business it is, but it’s been a bit expensive. Even after today’s pullback, its about five times sales or something like that.
“I’m in no rush to buy it at this point however I’d be tempted to buy it on a bit more weakness keeping the long-term view.”