Investment Analysis - Assignment

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Investment Analysis
Table of ContentsEXECUTIVE SUMMARY.............................................................................................................1ABOUT THE COMPANY..............................................................................................................2Gross Revenue:............................................................................................................................2Operating profit:..........................................................................................................................2Individual sector revenue:............................................................................................................3Corporate Strategy:.....................................................................................................................3Shareholder's value generating initiatives:.................................................................................4Porter Five Forces:.....................................................................................................................4Investments Recommendation for shares of Seek Limited..............................................................9Investment Thesis and outcome.......................................................................................................9Financial data of Seek Limited and its key important ratios:....................................................12Dupont Analysis:.......................................................................................................................15Industry Trends / Economic Environment.....................................................................................16Equity Valuation:.......................................................................................................................21Stability of performance............................................................................................................26Competitive Positioning.............................................................................................................27Investment Risks:......................................................................................................................27Conclusion.....................................................................................................................................28REFERENCES................................................................................................................................1Appendix:.........................................................................................................................................3
EXECUTIVE SUMMARYThis reports exhibits investments Recommendation for shares of Seek Limited along witha sharp analysis by using various analysis such as SWOT analysis, porter's five forces model etc.Seek Ltd.'s performance is compared with its top competitors in terms of gross revenue,Individual sector revenue, Corporate Strategy, Management structure, Shareholder's valuegenerating initiatives, Financial data of Seek Limited and its key important ratio, DupontAnalysis, Equity Valuation, Stability of performance, Competitive Positioning and Investment.This comparison shows that Seek Ltd has negative growth in current year which is temporarydue some major acquisitions. Risks related with Seek Ltd' s securities.Financial data of SeekLimited are interpreted with the help valuation of share of Seek Ltd by various model. Thisreport enable investors to take decision about buy, sell or hold securities of Seek Ltd.1
ABOUT THE COMPANYSEEK Limited is a public company which was founded in November 1997 by PaulBassat, Matt Rockman and Andrew Bassat and its website was launched on March 1998. Withmarket capitalisation of $587 million, Seek was listed on the Australia Securities Exchange on18 April 2005. Seek Limited is focusing on employment opportunities between job seekers andcompanies which are in search of employees. It ranked at 322 out of top 2000 companies of theAustralia and majority of income is generated by Seek Limited from the Internet Publishing andBroadcasting in the industry of Australia. In 2018, Seek Limited had generated a total revenue of$ 1328400000 which include sales and other revenue(Annual Report of Seek Ltd., 2018). ChiefExecutive officer of the company is Mr. Andrew Bassat and Non Executive Chairman of thecompany is Mr. Neil Chatfield. Seek Limited provide online employment advertisement servicesthrough its website and also provide online vocational training and education training courses inAustralia, New Zealand, China, India, Brazil, Mexico, Indonesia, Nigeria, Bangladesh,Philippines, Vietnam, Thailand, South Africa, Kenya, Malaysia, Hong Kong and Singapore.Gross Revenue:Gross revenue or gross income, is the aggregate sum of all revenues or incomes beforeany expenses during a particular period. Gross revenue includes all monetary income or revenuemade from the sale of goods and services, income from interest, sale of shares, exchange ratesand sales of fixed assets. Company's income statement shows gross revenue for a particularperiod. Net revenues calculated by subtracting cost of goods sold from gross revenue. Seek Ltd.has AUD 1295 million gross revenue in 2018 and achieved a growth of 25% in gross revenue(Bessler, 2015).Operating profit:Operating profit is income that remains after deducting all the costs related to thebusiness. It includes cost of goods sold such as fixed-cost expenses like rent and insurance,variable-cost expenses like shipping and freight, payroll and utilities, as well as amortization anddepreciation of assets (Bierman, 2012). All the expenses related to business should be includedin operating profit,2
Operating Profit = Gross Revenue - COGS - Operating Expenses - Depreciation andAmortization. Seek Ltd. Has AUD 318 million operating profit in 2018 and achieved a growth ofapprox. 24.7% in operating profit.Individual sector revenue:An organisation dealing in different-different fields, divides its revenue from all fieldssector wise. The Group recognises revenue when the amount of revenue can be reliablymeasured, it is probable that future economic benefits will flow to the entity and specific criteriahave been met. Seek Ltd. Divides its revenue in following sectors:SectorIncome($ m )SEEK ANZ393.4SEEK Asia141.6Brazil Online76.4OCC29.2SEEK Learning (Old)30ESVs31.2Zhaopin433Online Education Services107.2THINK31.4Other Businesses21.6Corporate Strategy:The term corporate strategy to outline decisions a company should make to achieve itsgoals and create policies to achieve them. Corporate strategy is the guideline an organizationuses with the objective of achieving business success in long term. A flexible strategy should beadopted an organisation in a dynamic business environment. A corporate strategy is developedwhile considering the purpose and scope of the organization's activities and the nature of thebusiness, the environment in which it operates, position in the marketplace, and the competitionit faces. Seek ltd uses vertical integration by focusing on greater control over an operatinsprocess by integrating a key segment. However, sometimes uses horizontal integration by takingthe existing services and acquires new business operations.3
Management structure:A management structure is way by which a company organizes its management chain.Management structures is a systematic chain of authority, communications, rights and duties ofan organization (Blomstrom, 2014). Management structure defines roles, power andresponsibilities are assigned to different levels of management. It depends on the organization'sgoals and culture. Seek ltd has a put under one control structure, the top level of businessmanagers has most of the decision making power and has tight control over departments anddivisions. In a gave self-government structure, the decision making power is made distributionand the departments and divisions may have different degrees of self -direction. In this context,in Seek Ltd has very few levels of management between the president or CEO, and the lower-level employees, Which enable Seek Ltd for rapid decision making due to only a few levels ofmanagement.Shareholder's value generating initiatives:Seek Ltd always gives top priority to enhance shareholder's value. Company not onlyfocusing on earning on short term basis but also towards shareholder's wealth creation. Seek ltdtakes initiatives in order to maximise the shareholder's value such as making acquisitions thatmaximize value, even at the expense of lowering near-term earnings, tries to carry only thoseassets that maximize value, by returning cash to shareholders when there are no credible value-creating opportunities to invest in the business, by rewarding CEOs and other senior executivesfor delivering superior long-term returns, by Reward operating segment executives for addingsuperior value and by requiring senior executives to bear the risks of ownership just asshareholders do.Porter Five Forces:It is a comprehensive strategy model used in strategic decision making activities byanalysing the present competition. In the context of Seek Ltd, Porter Five Forces focuses on -how Seek Limited can build a sustainable competitive advantage in Commercial & ProfessionalServices industry (Zhuo-hua, 2015). Managers at Seek Limited can not only use Porter FiveForces to develop a strategic position with in Commercial & Professional Services industry butalso can explore profitable opportunities in whole Commercial & Professional Services sector.Michael Porter's five forces model identifies key factors that have significant impact on a firm'sprofitability in the industry it operates in. following are the Porter's Five Forces -4
Threat of New EntrantsBargaining Power of SuppliersBargaining Power of BuyersThreat from Substitute ProductsRivalry among the existing players.Seek Limited Porter Five Forces Analysis:Threats of New EntrantsThreats of New Entrants::Bargaining Power of SuppliersBargaining Power of Suppliers::New entrants brings new thing, new ways ofdoing things and put efforts on reducing pricewhile providing new services. Seek Ltd canhandle this threat by developing newproducts and services. New services not onlybrings new customers to the fold but alsogive old customer a reason to choose SeekLimited ‘s services.Companies in the Commercial & ProfessionalCompanies in the Commercial & ProfessionalServices industry are outsourcing someServices industry are outsourcing someservices from third parties. Such third partiesservices from third parties. Such third partiesare deemed as suppliers in Commercial &are deemed as suppliers in Commercial &Professional Services industry. These thirdProfessional Services industry. These thirdparties use their bargaining power to extractparties use their bargaining power to extracthigher prices from the companies (Briston,higher prices from the companies (Briston,2017). The overall effect of higher supplier2017). The overall effect of higher supplierarriving at an agreed price or set of terms forarriving at an agreed price or set of terms foran exchange power is that it lowers the overallan exchange power is that it lowers the overalla money-making state of Commercial &a money-making state of Commercial &Professional Services. Seek ltd can handle thisProfessional Services. Seek ltd can handle thisthreat by building efficient supply chain withthreat by building efficient supply chain withmultiple suppliers.multiple suppliers.Bargaining Power of BuyersBargaining Power of Buyers::Threats of SubstituteThreats of Substitute::Service receiver want quality services byService receiver want quality services bypaying the minimum price as possible thatpaying the minimum price as possible thataffects Seek Limited profitability in the longaffects Seek Limited profitability in the longrun. Seek Ltd can handle this threat byrun. Seek Ltd can handle this threat bybuilding a large base of customers that helpsbuilding a large base of customers that helpsto reduce the bargaining power of the serviceto reduce the bargaining power of the servicereceivers and provides an opportunity to thereceivers and provides an opportunity to theThis threat occurs when a new product orThis threat occurs when a new product orservice meets a similar customer needs inservice meets a similar customer needs indifferent ways. Seek Ltd can handle this threatdifferent ways. Seek Ltd can handle this threatby increasing expense towards research onby increasing expense towards research onproviding new or unique services whileproviding new or unique services whileunderstanding the core need of the customer.understanding the core need of the customer.5
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