Online employment platform provider Seek Limited (ASX:SEK) has downgraded its FY15 and FY16 guidance due to weaker than expected results for SEEK Learning.
This morning shares of Seek have fallen more than 10% on the opening following the release of the announcement. SEK shares are trading at $14.66 at 11am (AEST), down from Friday’s closing price of $16.50.
SEEK has stated in its announcement that the company expects ‘solid growth in revenue and growth in EBITDA to be moderately lower than revenue growth’. Underlying NPAT is expected to be similar with net profit achieved during the first half of FY15. SEEK Learning is expected to generate EBITDA of around $31-33m.
The company blames a one-off IT system upgrade by TAFE NSW, which not only delayed the enrolment process but ultimately lead to incomplete enrolments and withdrawals. However, as expected the ongoing IT issue is not the only reason why FY15 guidance cannot be achieved. SEEK also states the highly competitive environment in the online education sector as well as regulatory changes to VET FEE‑HELP reforms which will negatively impact financial performance.
The exact impact on financial performance during FY16 is not entirely clear yet, however the company said it will provide guidance during the full year results presentation. Management remains positive about the future as ‘aggressive re-investment across the Group’ will result in long-term benefits for both the company as well as shareholders, according to CEO Andrew Bassat.
Whilst SEK shares have tripled between 2012 and early 2014, there were increasing concerns about SEK’s valuation and its ability to continue to grow at such a staggering pace. During the past 15 months these concerns have resulted in a sideways trend. SEK shares have traded between $16 and $18, failing to establish a clear direction. Today’s fall brings the annual loss to ~14% and it will be a challenge to SEK shareholders who are used to exceptional double digit growth.
SEK may have reached a temporary inflection point which will be crucial for the long-term outlook. The company has invested more funds in new ventures and projects than ever before. Whether these investments will yield in long-term growth remains uncertain, however in the short-term volatility will most likely remain high. The technical long-term ascending channel was broken several months ago which makes SEK dangerously susceptible to negative market sentiment. Long-term value investors may have to close their eyes for the next year and sit tight during this period of challenges. However, if SEEK’s growth incentives are being executed according to plan, the company should return to growth by 2017.
Author: Simon Herrmann
Jun 22, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.