Seek Shares Offer Value Following Deterioration in Technology Sector Sentiment

Shares in narrow-moat-rated Seek have followed global technology stocks lower in recent months, falling 28% since August as technology sector sentiment has deteriorated. However, the sentiment change has not affected our earnings forecasts, and we have increased our fair value estimate by 3% to AUD 18.60 to reflect the impact of the time value of money on our financial model. At the current market price of AUD 17.10, the shares now appear undervalued. The share price implies a fiscal 2019 price/earnings ratio of 31 versus 34 at our fair value estimate and 14 for the S&P/ASX 200 index. Over the past decade, Seek’s one-year forward P/E ratio has traded between 9 and 37 times, meaning our fair value-based P/E looks expensive relative to both the market and the stock’s historical range. However, the relatively high P/E is justified, in our view, as near-term earnings are being affected by reinvestment to support revenue growth and do not reflect the long-term potential of the underlying business. Over the next decade, we forecast a relatively high underlying EPS compound annual growth rate of 11%.