On 19 August Internet classified job search and job training provider Seek Limited (SEK) reported solid Full Year 2015 Financial Results and saw its share price drop about 11% in response to the news. It appears that a soft outlook for FY 2016 drove investors out of the stock. Given Seek’s solid history of rewarding shareholders, is the stock now a buying opportunity?
Seek is not the only “big name” ASX stock to see share price dips after the most recent earnings releases. The same question can be posed for the following four stocks, along with Seek: is it time to buy on the dips?
The following table lists the five stocks by market cap with one, three, five, and ten year average annual rates of total shareholder return (share price appreciation plus dividend payments.) We also included current dividend yield and a two year dividend growth forecast. Here is the table.
1 Year Total Share-holder Return
3 Year Total
5 Year Total Share-holder Return
10 Year Total Share-holder Return
2 Year Dividend Growth Forecast
| Computer -share|
| Bendigo & Adelaide |
| Seek |
| Ansell Ltd|
With the exception of Bendigo & Adelaide Bank only Seek comes even remotely close to the traditional view of an income stock. In addition, Seek has the best historical track record of rewarding shareholders. However, the stock has had a rough year, dropping 27%. The recent fall is the company’s second major drip in the last three months, having issued a profit warning back in June. Here is a six month year price movement chart for SEK.
Investors who bought that dip may be questioning their decision. Seek has an analyst consensus rating of HOLD with a two year earnings growth forecast of 14.2%, which may come down. The issue now is from where will Seek keep the growth story intact. As of the close of trading on 20 August the stock price moved up about 5%, closing at $12.88.
Seek serves employers looking for employees and employees looking for jobs. The company has added Seek Education to its stable, offering vocational training and educational courses online. Investors looked to Seek Education for substantial future growth but changes in regulatory requirements have hurt and some believe this segment was primarily responsible for the company’s earlier profit warning.
Seek is the market leader in the online job classified business here in Australia and in 13 other countries around the world including China, Brazil, Mexico, Hong Kong, Malaysia, Singapore, Thailand, Indonesia, Philippines and Vietnam. In 2015 the company made major investments in technology improvements and increased its investment in online job classified sites in India and Africa. Unfortunately for Seek investors, the company operates in markets with less than the best economic conditions. If you believe in an eventual global recovery Seek is definitely worth a look.
In theory, if the investing community sees a price drop as a buying opportunity one would expect some positive appreciation after the initial fall in price. As of this writing the Seek results are less than 24 hours old and have already moved up. We have some slightly longer history on the other earnings season losers in our table. Let’s begin with another outstanding ASX Internet stock – Carsales.com (CAR).
Like Seek, Carsales.com reported “record” results, but it wasn’t enough. The stock price closed at $10.49 per share the day before the release of Full Year 2015 Financial Results and fell to close at $9.82 on the day of the release. As of the close of trading on 18 August the price had fallen further to $9.55 but had ticked up to $9.80 on 20 August. Year over year the price has fallen about 14%. Here is the chart.
As you can see there have been two other potential “buying opportunities” over the past year. Carsales.com (CAR) began trading on the ASX a little more than five years ago and is up about 150% over that period. The company has expanded beyond its online classified listings and services provided to car dealerships. Carsales now to includes classifieds for boats, trucks, farm machinery, motorbikes and tyres. The most recent and most promising move was getting into the vehicle financing business. In July of 2014 CAR acquired Stratton Finance to establish a new operating segment called Finance and Related Services.
In its first year of operation this segment added $59.4 million in revenue to Carsales total of $311.8 million. In March of this year Carsales took another step towards growing its business with the acquisition of a 20% stake in newly formed P2P lender, Ratesetter.com.
P2P lending has the potential to disrupt traditional bank lending channels as this “peer to peer” lending arranges loans between private investors looking for a higher yield on their investment and private individuals looking for a lower interest rate on their vehicle purchase.
Investors may have soured on CAR because the Online Advertising revenues grew only 6.2% and this segment has been the company’s core business. Carsales is the market leader here in Australia and has interests in online vehicle sites in Mexico, South Korea, Asia, and Brazil. The company recently increased its stake in iCar Asia Limited which trades on the ASX under the code ICQ.
Although they lacked specific numbers, the outlook for 2016 contained in the company’s Full Year 2015 Financial Results was positive, both domestically and internationally. Company management was comfortable enough with full year results and the forward looking outlook to add a special dividend payment resulting in a 10% increase in total dividends paid over 2014.
Computershare Limited (CPU) saw its share price closing at $11.49 per share the day before Full Year 2015 Financial Results were released, falling to $10.42 after the release. The share price continued to fall until the company announced a share buy-back program and the price rallied a bit before ticking back down. Here is the chart.
The buy-back may have pleased investors but there is no getting away from the fact the company’s results were less than stellar. Unlike record results at both CAR and SEK, CPU saw small declines in both revenue (down 2.3%) and earnings per share (down 0.7%.) Much of that can be explained by headwinds from global currency fluctuations but CPU’s future growth is also in question.
Prior to the results release Computershare had a two year earnings growth forecast of only 1.4% compared to 14.3% at Seek and 13% for Carsales. The company provides a broad range of investor services to public companies trading on stock markets around the world. Services range from ownership registry to dividend payments to advice on capital reorganizations and mergers and acquisitions and employee stock option plans.
While the market may be concerned about increasing regulations of stock trading Computershare management is not. In fact, they see the push for trading reforms as a positive for the company since it increases barriers to entry for competitive start-ups. CPU has been hampered by “global economic headwinds” but one could make a strong case for costs as a major issue. In short, Computershare needs to spend to keep its technology state of the art. Its sheer market size may make it an attractive long term proposition, but in the short term even company management acknowledges rough seas ahead. The FY 2015 releases release plainly states 2016 development costs will go up and earnings per share is expected to drop by 7.5%.
Bendigo & Adelaide Bank (BEN) was created in 2007 with the merger of two banks. The bank focuses on individual consumers and small to medium size business enterprises as well as a wholesale banking operation. BEN has locations all across Australia, primarily in rural and agricultural areas.
The current dividend yield of 6% makes this bank an attractive income stock. The trailing twelve month P/E of 12.66 and Forward P/E of 11.51 compare favourably to the current banking sector P/E of 13.42.
The banking sector is under investor scrutiny of late due to concerns about home mortgages and potential regulatory changes out of RBA and the Australian Prudential Regulatory Authority (APRA). With its primary focus on rural and agricultural markets Bendigo & Adelaide is not likely to be heavily impacted by restrictions on mortgage lending. In addition, as a smaller bank BEN is also less likely to suffer from increased capital requirements. In short, this bank looks like a Buy, or at least a high spot on your watch list. Investors seem to be lumping BEN in with the big banks, despite the competitive advantages this smaller bank could have in the future. Here is a two year price chart comparing BEN to the Commonwealth Bank of Australia (CBA).
The final share in our table is global provider of health and safety equipment, Ansell Limited (ANN). The Full Year 2015 Financial Results showed a 3.5% increase in revenue and a 20% rise in NPAT (net profit after tax.) A weak FY 2016 outlook and management commentary on current conditions apparently sent investors scurrying for the exits, as the stock price fell from $24.38 to $$20.53.
First, management described the external environment as “more challenging” stemming from “disappointing” economic performance in both developed countries and emerging markets. Another key factor was unfavourable foreign exchange rates since Ansell reports in US dollars. Add to that the revelation Ansell’s currency hedging program, which management claims helped lessen the foreign exchange impact in FY 2015, would fade away in FY 2016. To top it all off, expectations for EPS in 2016 call for a range between US$1.05 and US$1.20, lower than the FY 2015 EPS of US$1.22.
In a puzzling response to the results, the stock price as of 20 August had climbed back to $22.34 from its post report low of $20.53, an 8.9% increase! Here is a one month price movement chart for ANN.
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