Shares of online employment and education provider SEEK Limited (ASX:SEK) fell more than 10% today following the release of its FY15 full year results.
The company delivered a record profit of $189.8m for FY15 and EBITDA of $348.9m. The improved profitability enabled management to increase the dividend to 36 cents compared to 30 cents last year. Revenue increased 20% to $858.4m compared to $713.4m last financial year.
SEEK’s CEO Andrew Bassat is pleased and said: “SEEK has achieved record full year results while significantly re-investing across the Group.” Mr Bassat is very clear about SEEK’s strategy as he believes it is a long-term integrated model, rather focused on short-term gains.
He continues further saying that “SEEK is uniquely positioned to capture large market opportunities across the human capital management industry. The combination of SEEK’s strong market position in high growth markets and the rich data we capture across jobseekers, hirers and students means we are uniquely positioned to develop new products & services that deliver significant value.”
Why did Seek shares fall despite a record profit?
It appears that investors expected even more growth in the range of 30-40% even though SEEK’s results were in line with consensus forecasts. Based on yesterday’s closing price of $13.78 and FY14 EPS of 50cents, SEK was trading at a Price to Earnings (P/E) multiple of 27, which indicates high expectations of earnings growth. The fall today is a result of a mispriced valuation and high expectations of earnings growth rather than weak financial performance. In FY15 EPS increased to 82.1, meaning that SEK is now trading at a P/E of approximately 15 based on a price of ~$12.30.
The Group now expects revenue growth of 15-18% for FY16 and NPAT of approximately $200m, which would be approximately 5% higher than today’s result.
SEEK’s dominant market position coupled with growth opportunities across its vertically integrated business models as well as its exposure to Asia are attractive qualities. Whilst we keep it on our watchlist, we believe that the market needs some time to revaluate the stock before it can settle and eventually finding support.