Recruitment giant Seek has been struck by claims by activist shareholder Blue Orca that its legacy business is stagnating, its Chinese business is inundated with forgeries and fraudulent postings and it carries debt levels more and more toxic
In a report released Thursday morning, Blue Orca said $ 8 billion ASX-listed companies’ claims that China’s online recruiting platform Zhaopin, which accounts for 48% of its revenue, was the China’s leading and rapidly growing player, were wrong
Investors reacted to the report by rushing to sell, with Seek shares dropping 8% within an hour of posting to $ 20.99 at the start of trade Seek Actions was halted just after noon
« Zhaopin’s platform is inundated with fake posts by companies that have been deregistered, liquidated or flagged as ‘abnormal transactions’ by Chinese authorities, » the report says
« The companies we called about their job postings on the website even said directly that the posts were fraudulent. Our due diligence also revealed a whistleblower complaint by a Chinese student alleging that Zhaopin is paying people for submitting fake resumes We think Zhaopin’s platform is rotten, which is devastating for Seek prospects «
Blue Orca said Seek has historically paid a dividend, making it look like his business was producing healthy profits and cash flow, but the report says that impression is wrong and the payments were largely funded by the debt
« Rather than valuing Seek as a fast-growing online recruiting platform, we value Seek for what it is – a slow-growing or non-growing platform with a shrinking core and which carries dangerous debt, « says report
Blue Orca said Zhaopin deserves a « substantial discount » and values Seek at $ 730 per share, a reduction of 69% from its last closing price
« Zhaopin is the bedrock of Seek’s share price and, in the future, its ability to service its increasingly toxic debt levels, » the report says. « We believe Zhaopin has vastly exaggerated its performance and that the platform is worth much less than what investors realize «
Blue Orca said Seek’s shares were « grossly mispriced » and that COVID-19 should not provide cover, as Seek’s Chinese activity should have already emerged from the worst effects of the virus that had receded in China
« We have no doubt that Seek will blame the virus for its terrible results, » the report says. « But investors should not be fooled: our review of its main Chinese platform shows rot preceded the pandemic »
Texas-based Blue Orca was founded by Soren Aandahl, former head of research at Glaucus, who successfully targeted sandalwood producer Quintis and asset manager Blue Sky Alternative Investments
Seek released a business update in June, when it recorded a net loss of $ 111.7 million for the year ended June 30, 2020 and reports a non-cash impairment charge of up to $ 230 million
At the time, Seek CEO Andrew Bassat stressed that Zhaopin’s resilience bodes well for a solid resumption of operations when conditions returned to normal after COVID
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Cara is the small business editor of The Age and the Sydney Morning Herald, based in Melbourne
Seek Limited, ASX, share, share price
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