Seek: Interim result 2016

They say good things happen to great businesses, and Seek's 2016 interim result proved the rule. All the company's international businesses performed well, with Zhaopin, Seek Asia and Mexico all reporting excellent results. Even Brazil managed to lift earnings despite the recession in that country (although it will weaken in the second half).

All up, Seek International's earnings before interest, tax, depreciation and amortisation (EBITDA) rose 36% to $101m, meaning it has now overtaken Seek Domestic as the largest division. When we upgraded the stock last year the headline was Seek finds success overseas and today that seems particularly apt.

While Seek International remains the company's most significant source of earnings growth, Seek Domestic was perhaps the (pleasant) surprise. Some have called the local division 'ex-growth', but the 18% increase in half-year EBITDA to $89m gives the lie to that. Past investments, as well as Seek's almost unassailable market position allowed it to lift prices 4% which, combined with volume growth of 6%, produced a better-than-expected result.

Management also provided a bit more detail on Premium Talent Search, the candidate database it has developed to help fight LinkedIn. While it's still early days, management said they were 'rapt' with the response. Around 350 clients are paying for the product, including 80% of Seek's top twenty clients.

Seek Learning was the main disappointment, with EBITDA falling 56% to $8m as regulatory changes began taking effect and shonky education providers left the industry. Management expects further pain here in the second half, with profit growth to return in 2017. By contrast, consistent performer Swinburne Online – of which Seek owns 50% – produced a 15% rise in EBITDA to $16m.

Early stage investments

Losses from Seek's earlystage investments will be a little higher than expected in 2016, perhaps rising to $20m. But Seek's record here is excellent – enrolments in the 'Seek Learning' type business in Mexico almost tripled in the half, for example. Seek has launched a similar business in Brazil and is currently developing one for Seek Asia as well.

The company reported total revenue rose 22% to $482m in the half. EBITDA increased 15% to $193m and statutory net profit rose 50% to $275m. Excluding the profit on the sale of its stake in IDP Education, underlying net profit was flat at $93m (see Table 1). Free cash flow was $148m, allowing a fully franked 21 cent dividend to be declared (ex date 5 April).

The company reaffirmed that EBITDA should grow 5–8% in 2016, which implies a much weaker second half. Management attributed this to expected weakness in Seek Learning and Brazil, as well as the absence of any contribution from IDP. Net profit guidance of $195m was confirmed for 2016, although that's before the effect of early stage venture losses.

This was a solid result, with the International and Domestic businesses producing excellent performances. It was also pleasing to see past investments in product and technology generating results in Seek Domestic and Mexico.

Management was unable to say much about the takeover bid for Zhaopin but presumably details will be released over the next month or two. Otherwise, the stock's 7% boost today provides some confirmation that Seek is the type of business that's likely to produce regular positive surprises.

With that in mind, we're upgrading our recommended Buy price to $13.00 (from $12.50 at the time of Seek finds success overseas). With the stock somewhat above that, it remains a HOLD.

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Disclosure: The author owns shares in Seek.