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You have to hand it to Andrew Bassat and the SEEK board. For the past two years they have been trodden their own path, seemingly unencumbered by any doubts, dismissive of criticism and impervious to any potential backlash against the contentious decisions they were making, or the business activities they were endorsing.

The verdict from the financial market, at least until 48 hours ago, has been strongly positive. Since slumping to $11.85 in late March 2020, shortly after the declaration of a global pandemic, the SEEK share price rebounded as if $100 notes were being printed 24/7 at 541 St Kilda Road, topping out at $31.70 last Tuesday; a rise of 268% compared to a 45 per cent gain in the overall market.

The on-going dispute as to who owns candidates applying to ads on SEEK; the dramatic price increase for their longest-standing customer segment; the hiring of a new senior executive who had most-recently been in charge of a huge public company on the receiving end of a record fine ($700 million) for ripping off a record number of customers (150,000); the departure of five senior executives with a combined 55 years’ in-house experience; a short-seller’s report asserting SEEK was 200 per cent over-valued; and the tone-deaf public pronouncements of their chief executive, have all been mere bumps in the road for Andrew Bassat and the SEEK board.

The events of the past 48 hours seem to indicate that the recent honeymoon might be over, temporarily at least.

Since Tuesday morning, SEEK has released their July 2020 to December 2020 half year results; announced a new CEO; announced a change in role for Andrew Bassat; and sold down their majority ownership in Chinese job board, Zhaopin.

The market response to all this news has been a resounding thumbs down with the SEEK share price plummeting 18 per cent, to $25.99  at the close of yesterday’s (Wednesday) trading(after bottoming out at $25.67), well down from last Tuesday’s all-time high of $31.70.

At the close of trading on Monday the price was $30.40. Immediately after the release of SEEK’s 2021 H1 update, at the beginning of trading the following day, their share price dropped $1.50 and it has dropped steadily ever since, currently representing a 10 per cent decline since 10 am yesterday and a 17.7 per cent drop since 4 pm on Monday.

Given that SEEK upgraded their profit guidance for the current half it would seem that the market really doesn’t like everything else it has heard from SEEK since Tuesday morning.

So what has SEEK announced?

  • SEEK’s July 2020 to December 2020 total revenue was only 4 per cent down (in constant currency, CC) on the equivalent six-month period in 2019. Total earnings before interest, tax, depreciation, and amortization (EBITDA) were up 1 per cent (cc) and net profit after tax declined 8 per cent to $69.7 million. Overall, the financial impact of the battering COVID-19 wreaked on the various employment markets serviced by SEEK had a relatively minor impact on SEEK’s results.
  • As of 1 July this year, Andrew Bassat will be relinquishing his Group CEO role, moving to an Executive Chairman tole and remaining as CEO of SEEK Investments.
  • The promotion of incumbent COO, Ian Narev, to the group CEO role, replacing Bassat.

And, as flagged in the H1 announcement, but only confirmed later that day;

  • SEEK’s impending sale of a proportion of their majority stake (61.1%) in Chinese job board, Zhaopin; reducing their remaining interest to a 23.5 per cent stake

SEEK pointed to total gross capital return of cA$944 million compared to total capital invested in Zhaopin of A$239 million and the future ongoing returns flowing from their remaining minority ownership, as the major net positives from the deal but the market clearly didn’t think much of the deal, driving the share price down more than 7 per cent across the announcement day (24 February 2021).

The net proceeds (expected to be A$560m, post-tax and transaction costs) will initially be applied against SEEK’s revolving debt facilities (net debt as at 31 December 202 was reported as $904.5 million).

Although you never know exactly what weight investors place on various announcements, or rumours, in determining what represents value in a company’s share price (to buy, hold or sell), here’s my best guess as to how the individual components of the announcement were received.

  • The upgraded profit-guidance for the current half year together with the July 2020 – December 2020 results, would both seem to have already been fully factored into the share price, given the steady rise in the SEEK share price since the beginning of November ($21.33 on 2 November, the first trading day of the month).
  • Ian Narev’s promotion to Group CEO and Andrew Bassat’s move to Executive Chairman (and remaining as CEO of SEEK Investments) wouldn’t be seen as a net negative: Narev’s an experienced senior leader, albeit with a faulty ethical compass, and Bassat is still around full-time.
  • As the Chinese job market, compared to the ANZ market, is higher volume, less mature and growing faster, the Zhaopin sale appears to be viewed by the market as a net negative. It’s pure speculation as to whether this negative sentiment is mainly driven by the sale price; the size of equity sold; the equity stake remaining; the stated use of the capital returned to SEEK or the sale’s impact on SEEK’s stated goal of $5 billion revenue by 2025; or some combination of the above. In the just-released half-year results Zhaopin accounted for 45.9 per cent of group sales and 37.3 per cent of group profit after tax. It would seem the market is not confident the SEEK board can easily replace this revenue and profit, in the short term at least.

Andrew Bassat’s full-time attention on SEEK Investments will, I expect, be welcomed by investors given SEEK has flagged a $55 million loss in the Early Stage Ventures (ESV) division of SEEK Investments, substantially higher than the August 2020 guidance of a $45-$50 million loss.

It would seem the board wants to reassure investors they are focused on doing much better in that part of the business through having their most trusted executive devote all his time to it.

Investors don’t like surprises and tend to punish companies who deliver them. All eyes will now be on Andrew Bassat, and the SEEK board to see if they can validate their recent decisions and win back the faith of investors who have punished them this week.

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