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Seek share price on watch as management responds to short attack

We examine the broad strokes of Blue Orca Capital’s short report against Seek, as well as the company’s just-released response.

Blue Orca’s Seek short

The share price of prominent Australian and international employment marketplace company Seek Group (ASX: SEK) is likely to be closely watched – and scrutinised – by investors in the days and weeks ahead following the release of an explosive short report from Blue Orca Capital last week.

As part of that report, Blue Orca alleges, among other things, that Seek’s Chinese business Zhhaopin is inundated with fake resumes and users, that the company is propped up by debt, and that investors have wildly ‘mispriced’ Seek.

‘Zhaopin is the foundation of Seek’s share price and, going forward, its ability to service its increasingly toxic levels of debt,' argued Blue Orca in its report.

‘Rather than valuing Seek as a fast-growing online recruiting platform, we value Seek for what it is — a slow or no-growth platform whose core business is shrinking and which carries a dangerous amount of debt,’ Blue Orca said in its report.

Blue Orca values Seek at $7.20 per share – implying potential downside of ~66% from the stock’s price at the close of Friday, October 30, 2020.

Management responds, stock slides further

Seek hit back at Blue Orca’s allegations today describing them as ‘unsubstantiated’, while saying:

'We believe the goal of the Report is to use speculative assertions to generate adverse publicity and then draw SEEK into public debate, which is consistent with the usual practice of short-seller firms.'

The company went on to stress its compliance with its disclosure obligations, while Seek’s management reiterated their confidence in the company’s long-term outlook.

Seek took particular issue with Blue Orca's characterisation of Zhaopin – noting that the company creates strong cash flow and has been profitable for more than a decade.

Seek also took issue with a number of 'accounting matters' that Blue Orca flagged, stressing that it remained consistent in its application of International Financial Reporting Standards.

Commenting on these matters, Andrew Bassat, Seek’s Chief Executive and Co-founder, said:

'We accept that market participants have different opinions, however this report is littered with inaccuracies.’

Despite those ‘inaccuracies’ – when trade in Seek’s stock resumed this morning, it was bid close to 4% lower in the first half hour of trade – to $20.66 per share. A slump, to be sure, but one that is a far ways from Blue Orca’s $7.20 per share valuation.

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