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Seek Limited is firing on all cylinders

Seek Limited  (ASX: SEK) has released a splendid set of figures for the last half year. The result is a record with strong revenue and profit growth. Key drivers were Seek Education and Seek International.

Revenue was $380.7 million, up 38% on the previous corresponding period (PCP). Net Profit After Tax was $111.2million, 65% ahead of the PCP. Dividend announced was 14 cents per share, a 40% improvement on the PCP.

Seek Domestic is the on-going market leader and performing extraordinarily well in the job placement market. Seek is one of a select group of online companies developed and managed in Australia. These include REA Group (ASX: REA), Fairfax Media (ASX: FXJ), Carsales.com (ASX: CRZ), Webjet (ASX: WEB) and Wotif.com (ASX: WTF). Seek and these others are all leaders in their respective fields, having had first-mover advantage and have continued to be dominant. They share a common business model, in that once the software is established, the cost to add each client is incredibly small, meaning that economies of scale weight very much in favour of these successful operators.

Seek has not only seized its position in the domestic job placement market but has successfully moved into both online education and international markets. As pointed out in the report, both Brazil and Mexico, where the company is particularly active, have a combined population of 320 million, which is 15 times that of the local market.

Looking into the future, the latest company presentation highlights penetration of employment and education services in high growth countries, such as China, Brazil, Mexico, and southeast Asian countries. The company has a solid track record of growth in terms of operational and financial metrics.  There is a strong earnings outlook and efficient capital structure to drive shareholder returns. Overall, Seek’s businesses are market leaders, exposed to large markets and favourable structural change. Currently global exposure is 2.5 billion people and 20% of global GDP, and there is plenty of scope to expand within and beyond that market.

Therefore, shareholders can expect Seek to pay a growing stream of dividends &/or deploy excess capital at high rates of return.

Foolish takeaway

Seek is one of those companies whose shares never seem cheap. Despite its high price-to-earnings ratio of 35 times, the rate of growth and the potential for considerably higher earnings are what matters. It is impossible to know for certain where the stock will go but one thing is for sure, we have not yet seen the top for this one. Eventually the company will slow down but that is a long way off. This stock has been a great performer and still represents very good value with low risk.

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Motley Fool contributor Chris Koenig does not have shares in any of the companies mentioned.

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