The online job classifieds platform, SEEK Ltd [ASX:SEK] share price has taken a beating today, after releasing its interim results revealing the company could split into two separate entities.
At time of writing the SEK share price is down 7.55%, or $2.29, to trade at $28.05 per share.
Before today’s sell-off, SEK share price made a triumphant recovery from the COVID-19-induced market crash last year.
Even with a struggling jobs market, SEK managed to claw back returns by October and — even with today’s drop — has returned shareholders 25.17% over the past 12 months.
Is it really the split that has investors worried?
Along with a potential new look for SEK, the company also announced its co-founder and CEO Andrew Bassat will step down and be succeeded by former Commonwealth Bank chief executive Ian Narev.
Mr Bassat will transition to a new full-time role as Executive Chairman and CEO of SEEK Investments and remain a Director of SEEK.
The Board believes SEEK Asia Pacific & Americas and SEEK Investments can benefit from a greater degree of independence and focus.
SEEK will focus on growing the AP&A operating business and retain investments in SEEK Investments and Zhaopin.
While SEEK Investments will access third-party capital to invest in and build new businesses in early-stage ventures and online education.
But does the split make sense?
First-half net profit fell 8% to $69.7 million from $75.6 million in the year-earlier period.
And revenue fell 7% to $826 million from the prior corresponding period of $883.7 million.
A result which means SEEK will not pay an interim dividend.
US activist short seller Blue Orca took on the online jobs portal last October, saying SEEK’s Zhaopin was full of junk employment listings to maintain the illusion of user growth.
Perhaps the cracks are beginning to show.
Although SEK say they are in talks about a potential selldown of their stake in Zhaopin, which would see it fall to 23.5%.
It’s uncertainty that has the SEEK Share Price down
In my opinion — especially with two experienced leaders on deck — it’s a good thing to split the firm into two, more agile businesses.
A more simplified business can more effectively focus on its value drivers, which can translate into better value for shareholders.
What may have caused the SEK share price action today is the uncertainty around whether the two operating groups will be formally split by a demerger.
A detail SEK themselves have not sorted out.
But a good investor should see this as an opportunity.
A demerger would allow investors to choose from the growth play in Seek Investments or the value play in SEEK AP&A.
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For Money Morning