Company Reports

Last year, narrow-moat Xero’s new CEO announced that under her tenure, the company would “look to” the so-called Rule of 40, which is a commonly used metric to assess software-as-a-service, or SaaS, businesses. Although management was reluctant to set the rule as a hard target at the time, the company did end up meeting the Rule of 40 in fiscal 2024, at least by its own measurements. We believe Xero’s well-publicized pursuit of the Rule of 40 has spurred greater interest in the metric across the technology landscape in Australia. We therefore review and discuss the performance of other Australian SaaS companies against this metric. Our fair value estimates for these companies are unchanged.

WiseTech’s long-term strategy centers on becoming the operating system for the logistics industry as the industry digitizes.

We raise our fair value estimate for narrow-moat WiseTech to AUD 100 per share with the first-half results. The near-term outlook is arguably somewhat weak. Guidance is for revenue at the lower end of the range. However, long-term leading indicators are very strong. Despite rallying to all-time highs with the result, we still think WiseTech is undervalued.

WiseTech’s long-term strategy centres on becoming the operating system for the logistics industry as the industry digitizes.

We maintain our AUD 95 per share fair value estimate for narrow-moat WiseTech. WiseTech’s CargoWise customers again outperformed their peers in 2023 in terms of market share gains and share price performance, supporting our hypothesis the company is a Kingmaker.

We raise our fair value estimate for narrow-moat WiseTech by 6% to AUD 95 per share following full-year results. WiseTech reported revenue growth of 29% and EBITDA growth of 21%, both slightly exceeding our expectations. Shares dropped around 20% during the day, which we believe is due to management guidance on revenue and EBITDA growth for fiscal 2024 coming in below market expectations. However, we view the guidance as constructive and have revised our forecasts accordingly. At current prices, WiseTech shares screen as materially undervalued.

We reiterate our AUD 90 per share fair value estimate for narrow-moat WiseTech. WiseTech shares continue to screen as undervalued despite the recent rally. We believe the market still underestimates how much CargoWise, WiseTech’s core product, helps its customers outperform their competition. We believe WiseTech is a kingmaker and greatly influences the success or failure of industry players.

We raise our fair value estimate for narrow-moat-rated WiseTech to AUD 70 per share from AUD 65 following its strong fiscal 2022 results and on transfer of coverage to a new analyst. We increase forecast EBITDA margins as the result suggests WiseTech’s business continues to scale well. Shares remain undervalued.

We have maintained our fair value estimate for narrow-moat-rated WiseTech Global at AUD 8.30 per share following its online investor day. At the current market price of AUD 30.41, we continue to believe WiseTech shares are significantly overvalued. Although WiseTech’s presentation contained 101 slides, we didn’t feel the company released much new information and we weren’t surprised the share price hardly reacted, dropping 2% on a rather soft day for the broader market.

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame.

Narrow-moat WiseTech Global’s fiscal 2020 financial result was in line with our expectations and management’s earnings guidance. Management reaffirmed fiscal 2020 guidance in April 2020, comprising revenue of between AUD 420 million and 450 million and underlying EBITDA of AUD 114 million to 132 million. Reported revenue and EBITDA of AUD 429 million and AUD 127 million respectively therefore came as little surprise to the market. Revenue and underlying EBITDA were broadly in line with our forecasts.

We have maintained our fair value estimate for narrow-moat-rated WiseTech at AUD 8.10 per share following its renegotiation of earn-out agreements with the vendors of businesses the firm has acquired. Before the renegotiations, WiseTech’s acquisition-related contingent liabilities were AUD 216 million and, based on the balance sheet at Dec. 31, 2019, AUD 82 million appears to have been due by the end of 2020. This doesn’t look hugely challenging for the company, considering it had AUD 233 million in net cash as at Dec. 31, 2020 and reiterated fiscal 2020 earnings guidance on April 22, 2020.

We have maintained our earnings forecasts and AUD 8.10 fair value estimate for narrow-moat-rated WiseTech Global following its reiteration of earnings guidance. Management still expect fiscal 2020 revenue of between AUD 420 and 450 million, versus our AUD 446 million forecast, and EBITDA of between AUD 114 and 132 million, versus our AUD 126 million forecast. Our forecasts imply revenue and EBITDA growth of 28% and 17%, respectively.

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame. This model exposes revenue to long-term world trade growth, enabling WiseTech to continue growing even if its customer base doesn’t. In the four years to fiscal 2019, revenue grew at a CAGR of 45%, and we forecast a 13% CAGR over the next decade as WiseTech's software is rolled out globally at existing large clients, in addition to further growth in client numbers. We expect strong revenue growth to combine with operating leverage to drive an EPS CAGR of 18% over the decade.

We have downgraded our fiscal 2020 EBITDA forecast for narrow-moat Wisetech Global by 13% to AUD 126 million following its surprisingly weak first-half result and management’s earnings guidance downgrade. Management now expects fiscal 2020 revenue of AUD 420 to 450 million and EBITDA of AUD 114 to 132 million, implying cuts of 3% and 17% to the earnings guidance reiterated at the annual general meeting late last November. The revised EBITDA guidance was 13% below our forecast and 18% below consensus forecasts before the result, which partly explains the 27% share price fall following the announcement. However, we’ve maintained our earnings forecasts for fiscal 2021 and beyond, which now imply a strong fiscal 2021 earnings rebound as the economic impact of the coronavirus in Asia dissipates.

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame. This model exposes revenue to long-term world trade growth, enabling WiseTech to continue growing even if its customer base doesn’t. In the four years to fiscal 2019, revenue grew at a CAGR of 45%, and we forecast a 13% CAGR over the next decade as WiseTech's software is rolled out globally at existing large clients, in addition to further growth in client numbers. We expect strong revenue growth to combine with operating leverage to drive an EPS CAGR of 18% over the decade.

Narrow-moat rated WiseTech Global’s share price has failed to recover following criticisms raised by J Capital Research last October, which indicates investors remain sceptical about management’s responses. The interim financial result will be announced on Feb. 19 and should provide much-needed clarity, although evidence either supporting or rebuffing the allegations is likely to cause significant share price volatility. Either way, at the current market price of AUD 24.87, we still think the stock is significantly overvalued relative to our AUD 8.10 fair value estimate.

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame. This model exposes revenue to long-term world trade growth, enabling WiseTech to continue growing even if its customer base doesn’t. In the four years to fiscal 2019, revenue grew at a CAGR of 45%, and we forecast a 13% CAGR over the next decade as WiseTech's software is rolled out globally at existing large clients, in addition to further growth in client numbers. We expect strong revenue growth to combine with operating leverage to drive an EPS CAGR of 18% over the decade.

As foreshadowed in our note of Oct. 21, 2019, we have maintained our earnings forecasts and AUD 8.10 fair value estimate following narrow-moat-rated WiseTech Global’s response to J Capital Research, or JCap’s, second highly critical research report, released earlier this week. Considering JCap has already published two reports, we expect the firm has few, if any, further allegations to make and we consider the publication of a third report to be unlikely. It’s quite possible JCap and their clients have already closed out short positions following the slump in WiseTech’s share price during the past week. It’s also likely that news flow from WiseTech will fall away as we head into the Christmas holiday period. The next major news flow from the company is likely to be the half-year financial result in February 2020 but this could create a period of heightened share price uncertainty and volatility until the next set of financial statements are released and JCap’s accusations linger.

We have maintained our fair value estimate for narrow-moat Wisetech Global at AUD 8.10 per share following the publication of two highly critical research reports by short-selling research specialist, J Capital Research, or JCap, on Oct. 17 and Oct. 21, 2019. Although Wisetech has strongly rebuffed the first report, the company is yet to respond to the extensive allegations in the second report. However, we are not particularly concerned by the allegations raised in the first report, including the allegation of accounting fraud.