How long have you held SEEK (SEK)?
We’ve owned SEEK for a long time. I believe we first invested in the company around 2006.
What do you like about it?
SEEK is the largest online global jobs marketplace by market cap and profitability. Domestically, SEEK is the job ad market. It accounts for approximately 70% of job ads and facilitated approximately 26% of job placements in F13 (placing approximately eight times more jobs than their nearest competitor). While the domestic business doesn’t have the tailwinds of growth that it used to, SEEK’s international investment portfolio should provide similar levels of growth into the future. Compared with the other online companies in Australia, SEEK started its move offshore quite some time ago, and it looks to be bearing fruit.
SEEK has had strong revenue growth averaging 30% over the past three years. It has had consistently high returns on equity (51% FY13), which have increased the last few years as its growth initiatives have begun to pay off.
How is it better than its competitors?
While SEEK dominates the domestic job ads market, it is starting to see alternative forms of competition emerge. What we like about SEEK and its management, is that it’s absolutely focused on its competitors and is very aware that it needs to keep innovating to keep its competitive edge. The company is very well resourced and able to funnel those resources into product development and new areas of growth.
What do you like about its management?
SEEK has had a very stable management team, who have been with the business for a long time. They have a deep understanding of the markets that they operate in and have been excellent custodians of the business for their shareholders. They’ve delivered consistent earnings and dividend growth and have remained focused on their strategy to be the world’s leading job marketplace.
What is your target price?
We don’t have one as we see ourselves as a long-term owner of a business, not a trader.
At what point would you sell it?
We would sell SEEK if our expected future three year return was lower than the current cash rate, plus our required risk premium for equities. Any material change to the business model or senior management would prompt a review of the holding.
How much has it added to your overall portfolio over the last 12 months?
Excess return of the portfolio over the benchmark is approximately 9%, of which SEEK contributed 2.87% of that excess performance. The stock itself has had a total return of approximately 20% over that same period.
Where do you see the value?
While SEEK’s domestic business is quite correlated to the jobs market, we think that the market underappreciates the leverage that the business can generate as things improve. In addition, there is significant value in its offshore businesses, which is years behind Australia in terms of its adoption of the online classifieds and advertising markets. Those tailwinds should be significant in their own right. Adding to that, its ability in running these types of businesses, provides a potent combination for future growth.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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