Trade call: Long Seek (SEK)

SEK is building very strong price momentum on its upcoming interim results. There is growth upside risk in its emerging markets business, while its ongoing reinvestment in products, platforms and brand are paying dividends in earnings growth.

Source: Bloomberg

Its education division has performed ‘solidly’ over the half and its balance sheet is in top shape. All this gives Seek (SEK) the upside risk of expanding its payout ratio to over 60%, seeing the interim dividend jumping and beating estimates.

The key stats:

12-month forward P/E estimate: 23.4x

Estimated earnings per share in FY15: A$0.77

Underlying net profit estimates: A$495 million

Yield growth 23.2% to A$0.353 for a net yield of 4.8%

12-month high $11.76 – 12-month low $18.45

Potential trade:

SEK broke through the top resistance level and is now trading near its record high. This is a short-term trade as we look to ride the momentum in SEK while expectations build for bumper results. Both the RSI and Stochastic indicators show it isn’t overbought yet and the momentum shows upside is building.

I would look to enter the trade at the current price with a stop loss at the previous resistance level of $17.24. The 123.6% retracement level for the high to low of 2014 is $19.33, with the 138.2% retracement at $19.82.

I would look for SEK to move to these levels in the lead up to its results and put a limit at the top retracement point of $19.82, while monitoring any rejection of $19.33 to mitigate a loss of profit. Trade time is very short so I’d look to be nimble and be closed out within one or two days of the results being released.

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