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Seek falls as covid does a job on hiring

Lex Hall  |  12 Aug 2020Text size  Decrease  Increase  |  
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Australia’s largest online job ad website Seek has moved into fair value territory after posting a sharp fall in full-year profit.

Seek (ASX: SEK) fell 9.6 per cent in trading on Wednesday after posting a full-year net loss of $111.7 million—a sharp fall compared with last year's profit of $180.3 million.

The share price fall means the company, which has a narrow moat, or ten-year competitive advantage, is fairly valued, according to the $20.50 fair value estimate of Morningstar analyst Gareth James.

Revenue rose by 2.6 per cent to $1.58 billion, up from $1.1 billion in the previous corresponding period.

However, this was marred by $138 million writedown in the value of its businesses in Brazil and Mexico, with chief executive Andrew Bassat citing the "devastating impact of covid-19" in the regions.

"Our businesses in Brazil and Mexico have been facing challenges for some time and this has been exacerbated by the devastating impact of covid-19,” Bassat said on Wednesday.

The company will not pay a final dividend but said it would do so again "once economic conditions improve".

Seek also booked an impairment charge of $60 million against four "non-core minority early stage investments".

Seek share price 1YR

Source: Morningstar Premium

Morningstar’s James had predicted the impairment in the Brazilian and Mexican business but said it was of minor concern.

“We’re not particularly concerned about the noncash impairments of the Brazilian, Mexican, and early stage businesses," James said in a note from 22 June.

“These businesses represent around 5 per cent of our valuation and the impairments are likely impacted by the tough near-term operating environment, which we don’t expect to continue into the long term.

“Seek’s balance sheet remains in good shape and the covenant limit increase is a positive sign.”

The company said that tightening restrictions had had an immediate impact on economic activity and hiring intentions.

Australia's jobless rate rose to 7.4 per cent in June, up from 7.1 per cent in May, despite the economy adding 210,800 new jobs as covid-19 restrictions eased before Victoria's second lockdown.

It was the biggest monthly rally since records were kept, but the unemployment rate is now at its highest since November 1998 because the participation rate—the proportion of working-age people actively looking for jobs—has risen to 64 per cent from 62.7 per cent.

Seek expects job ads will gradually recover throughout fiscal 2021 but remain below the peaks of fiscal 2020.

In its Asia unit, it expects job ad volumes to remain weak throughout the first half of 2021 before gradually recovering in the second half.

This article is part of Morningstar's Reporting Season 2020 coverage. The calendar will be updated daily to connect you with our equity analysts' take on the financial results.

is content editor for Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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