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Blog

SEEK

Ivor Ries

Still got the learning bug

Just months after shutting down its education broking business, SEEK (SEK) has upped the ante on education again, taking majority ownership of Online Education Services (OES).

SEEK's decision to go deeper into tertiary education reflects a deeply ingrained view in SEEK management that the opportunity in education is as big as it is in employment, and that in the online world the two go hand in glove. Whether full ownership of OES is just a nice little earner or a transformational deal depends on SEEK's ability to convince at least two other major universities to become OES partners. OES has plenty of capacity – but it needs a lot more content (degree programs) to become the earnings powerhouse it could be.

Cash generator

Since foundation in 2012, OES has been a significant cash generator. If the business does nothing but chug along with single-digit revenue growth, it will at the very least repay SEEK's incremental investment within 5-7 years. The downside scenario looks less risky than many of SEEK's former forays into non-core business.

Near-term risks

Near-term risks to SEEK's earnings outlook include:

  1. a softening of the Australian labour market;
  2. slow take-up of the Premium Talent Search (PTS) product by major recruiters;
  3. further unfavourable moves in exchange rates; and
  4. sharp downturns in Chinese, South East Asian or Latin American economies.

Investment view

SEEK offers investors exposure to the growth of online employment advertising and services and education services in Australia, Asia and Latin America. Due to heavy investment in business development, new products and innovation, we believe the company is on track to deliver many years of double-digit earnings growth.

As the company trades below our share price target, we retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for SEEK (SEK). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.