It is my honour to report that 2014 was another strong year for SEEK Limited (ASX: SEK). The company floated Zhaopin as promised, paid down debt, increased cash-flow, and reported a lower statutory profit simply because the FY 2013 result was juiced up by $160 million of "fair value gain on step acquisitions."
If you want to buy or sell shares in Seek, you will have to read the report yourself, but here are some important numbers that you won't see in the press release.
Segment revenue shows that all the international businesses are growing strongly with improving margins. Seek's core Australian website is growing a little, but margins are actually reducing a little bit.
Cashflow grew unusually strongly in 2014, as a result of significant capital expenditure in the last few years, but historically low capex in FY 2014. It's great to see that the company's big investments are paying off.
It's important to note that Seek has spent almost $550 million in capital expenditure in the last five years, so investment over FY2013 and FY2014 is pretty low. However, this is entirely acceptable because there may not always be excellent opportunities to deploy hundreds of millions of dollars. When that's the case, it's great to see the company strengthen its balance sheet, as it has.
It's also worth noting that in June, Seek launched the IPO of it's majority owned Chinese subsidiary, Zhaopin Ltd (ADR) (NYSE: ZPIN). Seek owns just over 60% of the company which currently has a market capitalisation of about $830 million. That means Seek's share is valued at a touch under $500 million.
Based on discounted cashflow modelling I simply can't justify a purchase of Seek shares at the current price of $16.72, even though I think it's a wonderful business. It definitely remains on the watch-list to buy during any broad-based market panic.
There's also no way I would sell my shares in Seek if I had any. This is one of the best companies on the ASX and I personally regret ever selling a single share – a truly awful decision. Partly, that's because Seek makes a laudable attempt at corporate social responsibility – if only other companies were like Seek, the world would be a better place. I think Seek is a hold, and a superstar stock for long-term investors.
Perhaps if I had more fully recalled these lessons on why it makes sense to value growth, I would have followed my own advice when I suggested buying Seek, when the price was under $13! Top-notch management under the leadership of founder Andrew Bassat makes it likely that the company will continue to grow sensibly for many years to come.
