What: Leading online employment classifieds group SEEK Limited (ASX: SEK) has announced that due to strong demand the company has decided to sell 100% of its ownership in IDP Education for a consideration of $330 million.
So What: For shareholders in SEEK, the strong demand for the initial public offering (IPO) of IDP stock means the group is set to receive a windfall for what is a non-core asset. Importantly, the proceeds will allow flexibility to pursue capital management initiatives or reinvestment into higher growth options. As I noted here, the spin-off of IDP could represent a much-needed catalyst for the stock which has seen its share price sink around 20% over the past 12 months. In comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down 14%.
Now What: The education sector has been under a rather heavy cloud recently. While much of the focus has been on the dismal performance of recently listed vocational education providers such as the currently suspended Australian Careers Network Ltd (ASX: ACO), the wider education sector has also underperformed. Leading university pathways provider and previous market darling Navitas Limited (ASX: NVT) has also experienced selling pressure as investors have questioned its status as growth stock – the stock is down 19% over the last 12 months.
The strong demand and potential for a well-supported float of IDP could go some way to not only restoring faith in the wider education sector, but importantly it could also lead to a reassessment of the pricing of SEEK. Given the high-quality business assets, strong balance sheet, high returns and future international growth potential the near term forecast price-to-earnings multiple of roughly 23 times is arguably a reasonable price to pay for long-term investors.
