Seek Ltd (SEK) is a provider of online employment services in Australia and New Zealand, but it is also expanding its interest globally. The company’s three main divisions are:

›	Seek Employment, which focuses on the online Australian and New Zealand employment
›	Seek Education, which incorporates Seek Learning and Think Education
›	Seek International, which includes significant interests in overseas online employment based websites

 
The company is the dominant player in the Aussie job ads market. However, with a slowdown in the domestic market, the international and education divisions are the group’s major drivers.

1H13 Results

The group’s 1H13 results were a solid improvement on the prior corresponding period, with a few of the key highlights being:

›	Revenue growing 32%, to $275.3 million
›	EBITDA up 20% to $89.8 million
›	Interim dividend increase of 20% to 10 cents a share

 
Seek’s EBITDA margin did fall from 43% in 1H12 to 39% in 1H13, but this was the result of the company obtaining a controlling interest in Brasil and OCC. Without these inclusions, the group’s underlying margin stayed steady at 43%.

The company had $96.5 million on hand at the end of the December half, helped by operating cash flow increasing 5.3%. Overall, the group reported great results despite the challenging macro conditions experienced in the half.

Growth

The above shows the group’s solid history of growing its revenue, much of which has been driven by its domestic business.

With online employment volumes under increasing pressure, the group has turned its focus to international expansion for growth. The group’s approach to this expansion was to target high growth regions.

In the first half of the fiscal year, the group took controlling interest of OCC (Mexico) and Brasil Online (Brazil), both the leading online employment sites in their respective countries.

SEK is also in the process of taking a controlling interest in JobsDB (Asia based) and Zhaopin (China), both are leading online employment sites in high growth areas with increasing internet penetration.

Outlook

SEK’s 1H13 was solid, especially given that its main domestic business experienced an 11% decline in volumes. The key take away from the results was the group’s ability to make up for domestic weakness via its growing international footprint. We particularly like SEK’s approach in this area with the company targeting the high growth regions of Asia and South America.

While domestic volumes are likely to be subdued, its international expansion will see the company’s earnings and share price continue to grow.

Seek Limited was issued as a share to buy to our members on March 13th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SEK but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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STW Communications (SGN) is Australasia’s largest marketing communications group, comprising over 75 specialist companies.

Through its subsidiaries, SGN works with Australasia’s biggest brands and some of the world’s biggest companies, including IBM, Ford, Panadol, Bendigo Bank, PepsiCo, Hyundai, Castrol and Dick Smith, to name just a few.s.

The acquisitions

In late October 2012, the company announced plans to acquire three companies, paid for via a $40 million capital raising. Markitforce (75% SGN ownership) is a leader in promotional campaign execution and point of sale fulfilment for local and global clients, with clients such as has Unilever, L’Oreal and Boehringer Ingelheim.

The acquisition will strengthen SGN’s execution capabilities and offer it exposure to the attractive retail and shopper marketing segment, which only adds to its already well diversified portfolio.

Maverick Marketing and Communications(Maverick) (80% SGN ownership) is a leader in experiential marketing from strategic and creative development through to execution. It has clients such as, Telstra BigPond, Coca Cola, Westpac, Bonds, Target and Vodafone to name a few.

The acquisition will provide SGN with experiential marketing capabilities, but we think it will provide a great opportunity for SGN’s current companies to leverage Maverick’s client base.

Switched on Media (SOM) (75% SGN Ownership) is a digital agency specialising in search engine marketing and social media. SOM’s client base includes Canon, Fairfax digital, Cochlear and Westfield. The acquisition of SOM will not only boost but also compliment SGN’s current digital capabilities.

Impact of acquisition

The total cost of the acquisitions (including Amblique) is $30.6 million; this includes an estimate of the likely earnout payments to the previous owners.

SGN forecast a full year contribution from the acquisitions for CY13 as follows: revenue of $29.8 million and EBITDA of $6.1 million. For CY13 the acquisitions are likely to be EPS neutral on a pre-synergy basis.

We expect synergy benefits, especially the cross selling opportunities to some very large blue-chip companies, to provide SGN with some major growth potential.

Outlook

When SGN reported its 1H12 results, it acknowledged the challenging macro economy and stuck to its FY12 forecast for mid-single digit net profit growth. Longer term, however, it remains in a strong position to benefit from the ongoing shift to digital publishing.

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REA Group (REA) is Australia’s leading online property advertising business. It operates a number of different websites including realestate.com.au and realcommercial.com.au, as well as international property sites such as Italian-based casa.it and Hong Kong-focused squarefoot.com.hk.

Realestate.com.au is the group’s flagship website, which generates revenue primarily through subscription fees levied to real estate agents.

Growth path

REA has been on a strong growth path since FY08.  In the four years since then, revenue has risen at an average rate of 20% whilst underlying earnings have grown at an average rate of 38%. Impressively, the group has expanded its underlying profit margin each year since FY08 and stood at 31% in FY12.

Margin expansion has come as operating cost growth has been kept in check, and revenues have increased due to the group’s property websites strengthening their competitive positions, especially in Australia.

Becoming more profitable has allowed the company to accelerate the rate of growth in free cash flow, giving it greater flexibility to boost dividends in coming years.

Highlight

Realstate.com.au retains a commanding position in the online Aussie property ad market. Its share of the overall market (revenue) was 60% in FY12 and its average monthly unique audience was almost twice that of its nearest competitor.

The group took steps in FY12 to protect its market position, launching a new mid-range residential listing product, Highlight. For a $700 monthly fee, Highlight allows vendors to make their ads more prominent among search results on realestate.com.au.

In what is arguably a buyer’s market in Australia, we expect property advertising upgrades like Highlight to attract increased interest from vendors looking to sell.

In a sluggish domestic property market, product differentiation will play a bigger role in generating revenue for firms like REA.  Highlight is an example of this differentiation.

Outlook

The Aussie property market’s struggles saw the number of REA’s subscription paying agents fall 6.4% in FY12. However the RBA’s spate of interest rate cuts will provide a degree of support to the property market in 2013. This should help stabilise the trend in the number of paying agents.

In what remains a challenging operating environment, REA is generating impressive revenue and profit growth.  The group said that 1Q13 revenue increased 17%, whilst EBITDA jumped 28%.

This bodes well for the remaining nine months of FY13, and reinforces our view that the quality of REA’s product offering (Highlight) and its dominant market position are key factors presently underpinning the share price.

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Ainsworth Game Technology (AGI) is involved in the design, production and sale of gaming technology and software. The group’s major market is Australia, but it also has operations in the Americas and Asia, with a focus on expanding its operations North America.

AGI derives most of its Australian revenue from NSW and Queensland. However it is North America where the group is currently looking to expand its presence. So far it has obtained licences in 16 US states, 84 Indian Tribes, 4 Canadian Provinces

FY12 results

AGI’s FY12 results show a company with a solid growth profile.  Revenue over the year jumped 54% to 151 million. Pre-tax profit surged 212% to $46.2 million, with eight consecutive periods of growth, as displayed below.

The group’s reliance on Australia for earnings has decreased, with 32% of FY12 revenue coming from international sources compared to 24% in FY11. Much of this was driven by the company’s expansion into North America, where revenue was up 109% over FY12.

The group’s focus on more profitable operations saw EBITDA margin increase from 26.2% in FY11 to 37.2% in FY12. AGI’s balance sheet is also in a very strong position, with a net cash position of around $51 million and free cash flow of $14.1 million.

Outlook

AGI’s FY12 results were great. We particularly like the net cash position as it gives the group the balance sheet flexibility to continue its expansion in the US.

At the group’s AGM, it forecasted 1H13 profit growth of at least 25% over the $18.8 million made in FY12. However, today the group said that based on the first five months of the financial year it is now expecting an increase of 49%.

The group said that strong sales have continued in its core domestic markets of NSW and Queensland. We see more good news on the horizon for AGI and we expect further share price appreciation.

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Technology One (TNE) is an end-to-end software solutions provider, catering for a number of industries including government, education, financial services, health and community, utilities, and managed services such as mining, property and media.

Diversified product base

TNE is diversified across a number of different products in that it is able to tailor software solutions to meet the needs of its various clients. For example, TechnologyOne Financials offers solutions that can more easily interpret accounting and financial information.

Because it generates revenue from multiple streams including business and non-business, TNE is not as sensitive to the economic cycle as some other tech companies.

Strong operating metrics

TNE has a history of earnings and revenue growth. Revenue has increased at a compound annual rate of 14% per annum since 2003, with net profit growing at 10%.

Moreover, the group’s EBITDA margin has hovered around 20% over the past five six-month reporting periods. TNE derives the bulk of its revenue from software licensing and consulting fees. The company receives an initial licensing fee for each of its software, which is supplemented by annual licensing fees and consulting service fees.

In 1H12, TNE’s annual licensing fees grew 18% due to high customer retention and satisfaction rates. Although R&D expenses jumped 11% on-year, the Connected Intelligence (Ci) enterprise suite has enjoyed a positive reception thus far. Ci is the group’s flagship suite of products.

TNE’s R&D spend is being ploughed into the next generation Ci, and we would expect the product improvement to be a key driver of sales going forward.

Future is in the cloud

TNE is currently in the process of building its own cloud product, TechnologyOne Cloud. The aim is to offer the Ci enterprise suite through the TechnologyOne cloud.

Cloud computing is the process of storing applications and other data on web-based servers, enabling end users to access the centrally-stored information from multiple locations.

The cloud’s key benefit for TNE’s clients is that they don’t have to install software on all of their computers and devices, which significantly reduces the cost of doing business.

The tech industry is only beginning to scratch the surface with cloud services. Apple released their own version of the cloud with the iPhone 4S, known as the iCloud, late last year.

TNE’s version is currently in the trial phase, but we would expect strong demand for this service once it is up and running after the next few years.

Outlook

TNE has enjoyed solid growth since 2003 due to the quality of its product and service offering. The software industry has low barriers to entry, so there has to be a continual focus on maintaining higher customer satisfaction levels and investing in future technology.

The 18% growth in 1H12 annual licensing fees demonstrates TNE’s customer focus, whilst its investment in TechnologyOne cloud is expected to reap long-term benefits.

This article was distributed to our members on November 20th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Technology One but all our current trading ideas. Simply click here and starting trading today.

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iiNet (IIN) is the third largest Internet Service Provider (ISP) in Australia.

IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world.

Acquisitions driving growth

A large part of IIN’s growth has come from acquisitions and evidence suggests the group is effectively managing their integration into the current business structure.

In late 2011, IIN purchased TransACT, an ISP provider in regional Victoria and the ACT. Early this year, it acquired South Australian-based ISP Internode.

The acquisitions helped lift FY12 revenue by 19%. IIN was able to report another blockbuster earnings result, with full year operating profit rising 47% to $145 million.

The group expanded its profit margins thanks to revenue increases, efficiency gains and operational cost-outs. The robust growth in profit also helped deliver a 17% jump in the full year dividend, to 14 cents (8 cent final dividend).

Cross selling benefits

A key benefit of IIN’s growth strategy is the cross selling opportunities available to it.

IIN offers a range of products and services to both residential and business customers. In addition to providing internet access, the company offers hardware (modems, routers, etc.), television (fetchtv), NBN, and phone services.

The complementary nature of these products, and the recent growth of IIN’s client base, sees it well placed to deliver on its aim of increasing the average product per customer from 2 to 3.

Outlook

A large part of IIN’s earnings growth has come from acquisitions, and the group is on track to achieve cost synergies from TransACT and Internode in FY13. The synergies are expected to drive cash flow and net profit growth this financial year.

Longer-term, the growth in IIN’s customer base, coupled with its expanded product offering, should provide the company with more cross selling opportunities.

We are confident in IIN’s ability to continue its strong growth path, helping to boost dividends and the return to shareholders.

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Computershare (ASX: CPU) provides technology systems and services for the international securities industry. Its core services comprise the provision of shareholder registry services, employee share plans and associated services such as printing and share registry analytical services.

Computershare’s US$550 million takeover of Bank of New York Mellon Corp’s investor service business has been approved by U.S regulators.

This deal expected to be completed around the 1^st of January and will make CPU the largest provider of share-registry services in the world.

Computershare is one of the hot stocks of the day up around 15%.

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Carsales.com Limited (ASX:CRZ) is an Australian business offering online access to automotive classifieds.

The company listed on the ASX at $3.92 in September 2009, up 12% from the $3.50 price at which the shares were issued.

Shortly after listing, CRZ was added to the S&P/ASX 200.

It is the largest consumer website in the country which covers automotive, plant machinery, motorcycle, caravan, marine and display advertising.

CRZ operates 23 individual websites which are all specifically focused on different products.

The company has been a fantastic growth story, benefitting from a migration to online advertising.

It has been one of the hot stocks since bottoming out at $3.79 earlier this month, having surged around 30% in the past few weeks.

Tough conditions, not for Carsales

Whilst most consumer sectors struggle in the face of tough economic conditions, CRZ has continued to prosper.

This is mainly because CRZ has been at the forefront of the continuing migration of advertisers from print to online.

Being proactive in identifying market trends has helped CRZ continue to be a clear leader in market share.

Surprisingly, there has been robust growth in new vehicle enquiry volumes despite decreased new vehicle stock availability.

CRZ recently acquired Jumbuck Entertainment’s OZtion assets which is one of the world’s leading developers of mobile phone applications.

FY earnings

CRZ reported a 30% jump in FY underlying earnings to $83.8 million with EBITDA margins at 55%.

Operating cashflow for the period climbed 19% to $60.1 million with operating revenue rising 26% to $152.5 million.

Earnings per share (EPS) increased by 34% to 25 cps while a final FY11 dividend of 10.5 cents per share was declared.

The majority of its revenue (47%) comes from the Dealer division and the Private division which accounts for approximately 20% of revenue.

The period saw continued strong growth in automotive enquiry volumes, up 15% on year.

Looking ahead

CRZ’s FY earnings were highly impressive, convincingly beating guidance. The company is looking to stay ahead of its competitors through the use of mobile devices.

Mobile now accounts for 13% of CRZ’s automotive traffic.

The acquisition of OZtion delivers CRZ a robust and proven e-commerce platform that will complement its growing general classifieds business.

CRZ has introduced significant new product releases with many planned for the coming months.

Its mobile application is expected to continue growing at a strong rate and will be a key area of ongoing focus.

Tough economic conditions remain a key challenge but we feel CRZ has enough upside potential to remain an outperformer, thus making it one of the stocks to watch.

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Carsales.com.au (CRZ) is Australia’s largest online automotive, motorcycle and marine classifieds business.

The company listed on the Australian share market in 2009.

Privately owned Nine Network has sold its 49% stake in carsales.com.au (CRZ).  Also CRZ announced the resignation of its non-executive directors.

The block trade was sold to a range of institutional and sophisticated investors at $4.92 per share.

Nine’s private equity owners, CVC Asia Pacific, said the sale proceeds would be used to cut $585 million in debt in order to prevent the need for an IPO of Nine.

CRZ slumped 4.6% on the day, making it one of the worst performers in the share market.

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SMS Management & Technology is a leading consulting, technology and systems integration company.

SMS has been one of the hot stocks in recent months, rising from a low of $5.12 in early June, to a high of $6.45 a couple of days ago, representing a 26% surge.

SMS recently announced its FY10 results; however they failed to really move market sentiment.

Net profit after tax gained 15% on the prior year to $27.9 million, whilst revenue increased 7% to $247.6 million.

Underlying earnings of $38.1 million were up 15% whilst the group declared a dividend of 29 cents per share, up 16% on year.

Despite the decent results, SMX admitted that a return to growth has brought with it cost pressures and that demand from the ICT sector has been contracted and is not expected to lift until the end of FY11.

SMX was among the decliners in the stock market on the day of the announcement, closing lower by 2%, to $6.26.

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