Seek: Dialled up the volume in FY22
About the author:
- Author name:
- By Steven Sassine
- Job title:
- Associate Analyst
- Date posted:
- 17 August 2022, 8:20 AM
- Sectors Covered:
- Diversified Financials
- SEEK's FY22 topline result (~A$1.12bn, +47% on pcp) came in ~2% above the upper end of management's guidance, whilst EBITDA (~A$509m,+53% on pcp) came within the guided range but was ~2% under consensus. It was a strong FY22 result overall in our view, however additional IT project spend (platform unification) was a surprise to a degree.
- We lower our FY23-FY25 EPS estimates by ~7-14% factoring in the provided guidance, additional incremental IT investment spend, and further conservatism around opex normalisation/spend over our forecast period. Our price target is lowered to (clients login to view) on the above changes. Whilst we expect job ad volume growth to normalise, we believe SEEK has levers to pull (i.e. price) to continue to drive yield. We move to an ADD recommendation.
FY22 result
SEEK's FY22 topline result (~A$1.12bn, +47% on pcp) came in ~2% above the upper end of management's guidance. Group EBITDA (~A$509m,+53% on pcp) was within the guided range but ~2% under consensus as SEK's cost base normalised to more pre-COVID levels (+42% on pcp). The EBITDA margin expanded ~2% on pcp to 46% whilst NPAT (ex sig. items) of ~A$246m (+81% on pcp) was within guidance. A fully franked final dividend of A21cps was declared (FY22= A44cps).
It was a strong FY22 result for SEK in our view, with robust job ad volume growth seen across its core employment marketplaces. FY23 guidance was given, including: revenue of A$1.25bn-A$1.3bn (+14% pcp growth at the midpoint and ~10% ahead of pre-result consensus); EBITDA guidance of A$560m-A$590m (+13% pcp growth at the midpoint) and NPAT of A$250m-A$270m. Management noted there are likely more “downside scenarios” in the assumptions driving this guidance given the robust job ads volume growth experienced over FY22.
Additional spend on platform unification
The strong ANZ performance was a highlight in our view, revenue was up 53% to A$827m and EBITDA +60% on pcp to A$530m (margin of 64%) driven by +39% absolute volume growth and average Ad yield growth of 11%. Depth adoption continued and is now 36% of revenue (vs 32% in FY21).
One of the key takeaways in the result however was the upsize in the Platform unification spend from A$125m to A$180m, with the majority (70%) of the incremental cost (incurred within SEEK ANZ) relating to expanded project scope (combined APAC ERP vs previously planned separate ANZ/Asia) with the balance of spend more capacity related (i.e. headcount).
SEEK Asia saw strong revenue growth of +37% on pcp (constant currency) to A$202m driven primarily by +38% absolute volume growth. Whilst depth revenue grew (now 27% of revenue vs 19% in pcp) higher volume based discounts however impacted average ad yield (-1% on pcp). The EBITDA margin of 26% was down 7% on pcp as significant investment continued in the region on marketing (rebrand) and user experience (e.g. mobile app).
The SEEK Growth Fund portfolio value increased to ~A$2.5bn (pre-adjustment), however post a -18% valuation downwards to reflect public markets, the fund was valued at ~A$2.05bn (+36% on pcp).
Changes to forecasts and investment view
We lower our FY23-FY25 EPS estimates by ~7-14% factoring in the provided guidance, additional incremental investment spend, and further conservatism around opex normalisation/spend over our forecast period. Our price target is lowered (Morgans clients login to view) on the above changes.
SEK's performance remains robust with strong domestic listings and candidate shortages driving increased reliance/utilisation of SEK's products. Whilst volume growth is expected to normalise off the record high levels seen in FY22, we believe SEEK has the ability to pull levers (e.g. new pricing model) to drive yield growth.
Risks
Downside risks to our recommendation include overall weaker employment conditions resulting in a strong turn down in job ad volumes; competitive intensity impacting margins; elevated/prolonged investment spend than anticipated; investments not producing desired ROI.
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