In November 2013, SEEK Limited (ASX: SEK) sold its 80% holding in THINK Education for $104 million. THINK Education Group runs for-profit educational institutions, offering courses in Business & Hospitality, Design and Health & Wellness. In FY 2013, the business achieved EBITDA of $15.2 million, so Seek's share was sold for about 9.2 times EBITDA: a reasonable price for Seek's shareholders.
More recently, the Australian Financial Review reports that the company's bankers are sounding out potential investors for a float of IDP Education, suggesting a "$300 million-plus" IPO might be in the pipeline. In the 2013 AGM presentation, the company said that a float would be in order if market conditions were appropriate in 2014, and that the company would probably sell part of its holding.
IDP Education assists international students to find overseas study options and runs the mainstay IELTS English language tests. If Seek does sell some of its share in IDP Education, the company is likely to find itself with excess cash on the balance sheet. Inclusive of the THINK transaction, Seek's pro-forma net debt balance would have been about $84 million at the end of September 2013. Seek currently owns 50% of IDP Education and so could retain 25% of IDP Education and still raise over $80 million in cash, if the IPO valued the company at $320 million. IDP achieved a profit of over $20 million in FY 2013, and has cash of almost $50 million, so a price tag of $320 million is certainly plausible.
Even better, the administrative hurdles to Seek's 80% owned Chinese subsidiary Zhaopin paying dividends to the parent company have been cleared. CEO Andrew Bassat is convinced there are real advantages to being a listed company in China, including the ability to hire and retain top staff and Seek has announced plans to float Zhaopin.
Zhaopin achieved EBIDTA of just under $13 million in FY 2013. However, it is not the jewel in the crown of Seek's international assets. That mantle belongs to the 51% owned Brasil Online, which grew EBITDA 46% to about $30 million in FY 2013. Brasil Online is the dominant jobs website in Brazil, whereas Zhaopin is the number two jobs website in China. In 2013, Zhaopin correctly focused on growing market share, and was successful in growing its footprint in "tier 2/3 cities." In 2014, the company will focus on "tier 3/4 cities."
Foolish takeaway
Seek trades on a trailing dividend yield of about 1.7%, fully franked at a share price of $12.80. However, strong earnings growth means investors can expect the company to either increase the dividend, deploy excess capital for high returns, or both. Based on discounted future cashflow, and accounting for sustained growth, the company appears fairly priced at current levels. All-in-all, management prowess and the planned asset sales make this look a fairly attractive time to buy.
