Employment services and training company Seek has long been a favourite of Switzer Super Report writers. Last July, CEO of investment manager EC Pohl & Co, Manny Pohl, wrote about why he has held it for eight years [1] and George Boubouras analysed it way back in June 2012 [2].
But a downgrade earlier this week has hit the stock hard – shaving nearly 15% off the share price.
[3]Source: Yahoo!7 Finance, 25 June 2015
In the scheme of things it wasn’t a particularly big downgrade. NPAT in the second half was downgraded from “moderately greater than 1H 15” to “broadly in line” with 1H 15. EBITDA for Seek Learning moved from “greater” than $32.6 million to “$31 million-$33 million.”
“The main cause of SEEK Learning’s results being lower than our prior expectations relates to one-off issues with an IT systems upgrade undertaken by TAFE NSW. SEEK Learning had fulfilled its sales obligations but TAFE NSW’s IT issues resulted in errors and significant delays in the enrolment process, ultimately leading to incomplete enrolments and very high withdrawal rates,” CEO Andrew Bassat said in a statement to the market on Monday.
Seek Learning is only responsible for about 18% of Seek’s earnings, and as Paul Rickard says in his Switzer Daily article today [4], it’s a pretty minor downgrade.
“It appears to be symptomatic of the problems a group undertaking rapid offshore expansion can encounter where management’s attention is distracted by bedding down the new businesses, and loses focus on issues closer to home, such as an IT upgrade,” he says.
The brokers are reasonably positive on the stock and have four Buys, two Sells and two Neutral rankings. The consensus target price of $16.26 is a 15% premium to the current market price.
“Seek’s long term growth record is pretty impressive, and despite the challenges in the Learning Division, Seek International and Seek Domestic are on track to post higher earnings,” Paul says.
So it may not be a bad time to buy if you’re thinking of holding for the long term.
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