SEEK on the Charter: A Glance at Recent Developments

  • Jul 07, 2020 AEST
  • Team Kalkine
SEEK on the Charter: A Glance at Recent Developments

Summary

  • Despite the challenging situation prevailing in the market, SEEK has focused on ensuring the long-term health of the business.
  • The Company is seeking to raise capital from the market. SEEK had earlier received a short-term increase to key covenant limits in its syndicated debt facility.
  • Improvement seen in the billing trends across businesses like SEEK ANZ, SEEK Asia since early May 2020 & Zhaopin since early March 2020.
  • The Company, through debt transaction, aims to improve the funding flexibility, which would support SEEK’s medium to long-term growth strategy.

SEEK Limited (ASX:SEK) is an operator of the online employment classified and education and training. The Company witnessed an impressive stock performance over the past three months, with returns of 53.27%. By the end of the day’s trade on 6 July 2020, the shares settled at A$21.700, down 2.559% from the previous close, with the market cap of A$7.86 billion and 353.03 million outstanding shares.

SEEK is a varied group of businesses that aim to help people live more fulfilling and productive working lives and businesses to succeed. The Group has a strong international portfolio of employment and education businesses and a market leader in online employment marketplace with deep understandings into the future of work. It has exposure to 2.9 billion people, over 51 million students and learners and footprint in 18 nations globally, including China and across SE Asia and Latin America.

The product developed by the Company involves investment in Artificial Intelligence and technology.

With this background, let us find the reasons which supported the Company’s shares to surge on ASX in the last three months.

According to media sources, SEEK Limited is looking to raise capital from the market. This follows the short-term increase the Company received to key covenant limits in its syndicated debt facility. The details are given in the following section.

A Glance at FY2020 Trading Update, Impairment and Capital Management Update:

Trading Update:

Despite the challenging situation in recent times, the Company remains focused on ensuring the long-term health of the business. SEEK continued to invest and execute against the key drivers that support the Company’s long-term aspirations.

At SEEK ANZ & SEEK Asia, continuous improvement was seen in the weekly billing results since early May 2020. Sustained improvements in billing results in Zhaopin were noted since March 2020.

The Company witnessed good results from OES and the ESV portfolio. Other businesses, however, did not perform well during this period. The Company would now be taking steps to recognise the reduction in the carrying values of Brasil Online, OCC Mundial and four other small investments.

SEEK noted that its near-term profitability got impacted by the virus. However, its largest businesses remain extremely defensible and well-positioned to take advantage of the massive opportunity set.

In the present times, SEEK is prepared well to play a significant role in linking the most appropriate candidates to hirers across its major markets. Thus, it would be playing a crucial role in the recovery of the economy with a rise in job opportunity.

Impairment of Assets: 

As pointed above, the Company’s larger businesses are improving well, and most of its ESVs are doing well despite challenging conditions. Still, there has been a devastating economic impact across Brazil and Mexico. There was a decline in the financial outlook for four investments that operate beyond its core themes.

Because of these factors, the Company expects to recognise a total non-cash impairment charge of A$190 million - A$230 million with respect to Brasil Online, OCC Mundial and four non-core minority investments.

The Company would recognise a Reported NPAT loss in FY2020 due to the projected non-cash impairment charge. Further, the Company confirmed that the impairments are unaudited and would not be having any significant impact on its debt covenants.

FY2020 Outlook:

  • SEEK projects its revenue to be approximately A$1,575 million.
  • EBITDA would be around A$410 million.

Capital Management Update:

Through to 30 June 2021, the Company has achieved a temporary boost to key covenant limits in its senior syndicated debt facility. As at 31 May 2020, SEEK is operating within its debt covenants with net debt of approximately A$932 million and around A$363 million of its senior syndicated debt facilities which remain undrawn.

Further, in the announcement dated 22 June 2020, the Company made offers to the holders of the A$175 million Floating Rate Senior Notes issued on 28 April 2017 and due April 2022 to bid their Senior Notes for SEEK to purchase for cash. Along with the Offer, the Company expects to provide notice of Extraordinary Resolutions to solicit approvals of the holders of the Senior Notes to the implementation of specific proposed amendments to the Conditions of the Senior Notes.

What would be the Impact of SEEK’s Capital Management Strategy?

The increase in the key covenant headroom to 30 June 2021 would be additional flexibility to the Company. The potential to issue subordinated debt would create additional senior debt headroom. It would result in the extension of debt maturity profile.

SEEK’s Employment Report for May 2020:

  • SEEK jobs grew by 39.7% month-on-month.
  • Job advertisements declined by 52.5% year-on-year.
  • The sectors that contributed the highest month-on-month job ad growth were Hospitality & Tourism, Trades & Services and Manufacturing, Transport & Logistics.
  • All states witnessed positive month-on-month job ad growth during May 2020. However, volume was considerably low year-on-year.

Bottomline:

A rise in the job opportunity would boost the economy, which, in turn, would also be an opportunity for players like SEEK.

As per the statistics released by the Australian Bureau of Statistics, the total job vacancies declined by 43.2% to 129,100. Private-sector job vacancies slipped 45% to 111,200 as compared to February 2020 and public sector by 28.9% to 17,900.

The responses for the Job Vacancy Survey (JVS) May 2020 quarter remained high with similar levels of responses to prior quarters.

As projected by the Australian government, in the near term, the country would have an impact on the labour market due to the COVID-19 crisis. However, by 2024, the employment is expected to grow in 16 of the 19 broad industries. The most significant contribution would be from healthcare and social assistance followed by Professional, Scientific and Technical Services, Education and Training and construction.

 


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