Industrials

Does Seek now look oversold?

Wed 09 Mar 22, 2:27pm (AEST)
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Key Points

  • Job ads group witnesses stock selloff after solid earnings announcement on February 15
  • Increases FY22 NPAT guidance to $230m-$250m
  • Bullish brokers estimate potential upside of Seek stock at 17%-41%

Shares in Seek Ltd (ASX: SEK), already down -18% this year, have been languishing since February 15th, when the job search ad group revealed solid first half FY22 earnings that nonetheless failed to impress the market in spite of mostly bullish broker ratings.

After rallying 6% on the day of the earnings release, the stock fell back -7.5% in the days after, and are now trading around $27, amid concerns over the macroeconomic impact of possible higher interest rates and much higher oil prices.

Record ad volumes

The company reported first half FY22 net profit after tax of $124m, up 147% on the first half of FY21, on the back of record job advertising volumes in Australia, NZ and Asia.

Job placement volume in the first half of FY22 in Australia and NZ jumped 72% on the previous period, while Asia jobs volume increased 42%.

Seek is trying to double its revenue in core businesses over the next five years.

The group upgraded its FY22 earnings guidance, to between $230m and $250m, with revenue forecast at between $1bn to $1.1bn.

Goldman Sachs: A solitary call to sell

Three of six major brokers covering the stock have buy recommendations, with upside potential ranging from 17.6% to over 41%, while another two rate it hold, but with similar target prices.

Goldman Sachs stood out with its sell recommendation, citing an expected slowing in FY23 and concern over whether the current strong ad volumes can be maintained.

The broker expects the rate of growth in Seek’s earnings (EBITDA) to slow considerably in FY23, from 53% in FY21-FY22, to just 4% in FY22-FY23.

What the brokers think

Six major brokers cover Seek Ltd. The consensus is a Buy rating with a $33.96 target price (24.8% upside).

Morgans: The first half result exceeded consensus revenue forecasts by 4%; but FY22 margins will be tempered by sooner-than-expected investment spending. The broker kept its Hold rating, but with a higher target price of $32.33.

Macquarie: Result was in line with the broker’s expectations. Management’s second half FY22 revenue guidance implied revenue growth of 32%. The broker retained its Outperform rating with the target price falling from $37 to $32.

Credit Suisse: The results beat the broker’s own forecasts, and the company’s upgrades to its FY22 guidance prompted the broker to increase its own earnings estimate, although higher debt was a disappointment.

The broker retained its Outperform rating, dropping its target price to $38.5 from $39.5.

Written By

Ben Seeder

Journalist

Ben is a freelance contributing editor based in Tasmania. He has a Bachelor's Degree in Journalism and Government from the University of Queensland, and is a small-cap stock-picker.

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