EUR 850.00 For Business Accounts Only

Morningstar | Seek’s AUD 19.00 FVE Maintained Despite Guidance Downgrade. See Updated Analyst Note from 30 Apr 2019

We have maintained our earnings forecasts and AUD 19.00 fair value estimate for narrow-moat Seek despite the slight downgrade to fiscal 2019 earnings guidance and the announcement of new acquisitions. Management have changed their description of the fiscal 2019 reported NPAT guidance to ‘moderately’, rather than ‘slightly’, below the prior year and we assume our forecast 4% decline is in line with the guidance. At the current market price of AUD 18.21, we still believe Seek is fairly valued.

Seek’s decision to invest in online learning platforms Coursera and FutureLearn is consistent with its strategy of investing in early  stage businesses across the employment and education sectors. However, the   combined investment value of AUD 142 million is immaterial relative to our AUD 6.7 billion valuation of Seek’s equity. Management maintained fiscal 2019 revenue and EBITDA guidance but increased fiscal 2019 losses from early stage ventures, or ESV’s, to AUD 45 to 50 million, from AUD 40 to 45 million, which is likely to be a result of the latest investments.

Seek has been criticised over its decision to create a portfolio of loss-making ESV investments. To some degree management is acting like a venture capital fund manager, however, we are comfortable with management’s investment track record and believe it’s important to maintain exposure to emerging and disruptive business models in the sector. In the short- to medium term, this is likely to mean revenue growth will be prioritised and profits will be affected but the long-term prospects of the company should improve.

We expect the latest investments to be more strategic than financial, in the medium term at least, considering both companies are making losses and this is likely to continue in the foreseeable future. We expect Seek will be a largely passive and financial investor in Coursera but the investment should provide insight into the large and fast growing online learning platform market. We expect Seek to have much more involvement in FutureLearn, because of its 50% shareholding, but we don’t expect material financial returns from the business soon. Rather, the business will provide Seek with exposure to the European online learning platform sector and may provide opportunities to leverage Seek’s existing employment and education technology expertise.