Seek share price continues to run as short attacks are forgotten

Seek share price recovers from whale-sized short attack

Less than a month has passed, yet the market already seems to have forgotten the comprehensive short attack Blue Orca Capital launched against Seek (SEK), one of the country’s largest online employment platforms, with operations spanning China and Australia.

The market seems to have barely noticed some of the claims in Blue Orca’s report: problematic debt levels and a ‘mispriced’ valuation are hardly anything new for a publicly listed company, after all. The much more interesting claim from that report though was that Seek’s Chinese jobs business, Zhhaopin, was filled to the brim with fake resumes and users. That claim, if proven true would certainly be problematic.

‘Zhaopin is the foundation of Seek’s share price and, going forward, its ability to service its increasingly toxic levels of debt,' said Blue Orca’s Soren Aandahl, one of the two men who spear-headed the 2018 short attack against Blue Sky Alternative Investments.

Seek’s management at the time said the report contained many ‘inaccurate statements’ and that the company would not be drawn into public debate. On the front of Seek’s Chinese business, management stressed that Zhaopin 'is a strong business with a long history and operates at considerable scale.' While examples of resume or user fraud may be located on any online platform, Blue Orca’s framing of this issue within its report is ‘greatly exaggerated and misleading,’ said Seek.

Indeed, while SEK dipped following the initial shock of the short report, falling to an intraday low of $19.78 per share. Since then the stock has only trended higher, breaking all-time highs in the process.

Blue Orca says Seek’s fair value is $7.20 per share, well below Seek’s closing price on Thursday, November 19 of $25.53 per share. The market’s response seems to suggest one of two things: Investors simply believe Blue Orca’s assertions to be false, or they simply don’t care.

One thing the market does care about though is earnings upgrades. Here, while Seek management said forecasting remains challenging due to the uncertainties created by covid-19, the company nonetheless raised their full-year FY21 revenue and earnings guidance as part of Thursday’s AGM – with full-year revenues now expected to come in at $1.6 billion, earnings (EBITDA) $400 million and profits (NPAT) of $50 million.

'Near term will be challenging but expect SEEK to invest and capitalise on its significant long-term revenue opportunities,’ the company flagged.

For reference, Seek had previously guided for revenues of $1.47 billion, EBITDA of $330 million and NPAT of $20 million, during an August update.

In response to this news UBS analysts raised their price target on SEK to $26 from $22, but lowered their rating to Neutral from Buy as a result of the recent share price rally.

‘We remind investors that tax / minority / ESV leakages will result in less of an NPAT uplift than the EBITDA upgrade would otherwise suggest,’ the investment bank said.

Interestingly, despite lowering their rating, UBS analysts remain bullish on Seek’s prospects, raising their FY21 EBITDA estimates ahead of the company’s own upwardly revised guidance figures.

‘Post today we up our FY21E EBITDA to c$425m, as we feel new guidance could still be conservative based on the strength of current listings momentum. This results in a 225% FY21 EPS upgrade.’

Seek continued to trend higher on Friday, November 20, with the stock trading in the green a little after noon.

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