WiseTech: When Software Vendors Become Kingmakers

We reiterate our AUD 90 per share fair value estimate for narrow-moat WiseTech WTC. 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.

CargoWise provides its users, especially global freight forwarders, a powerful efficiency and productivity tool. Given the market for logistics services naturally selects for low-cost providers, theory would suggest that companies with higher efficiency and productivity should outperform competitors through market share and/or margin gains. We find strong evidence for this in practice.

In our studies of long-term CargoWise customers, we found their share prices significantly outperformed peers and that CargoWise customers took significant market share. We think CargoWise helps its customers build scale and cost advantage, critical in a cost-conscious market.

There are important implications for investors. First, we think WiseTech has significant latent growth. CargoWise customers have grown their business in the low double digits, through organic and inorganic growth. We think WiseTech can grow its CargoWise revenue along with the growth of its customers, without the need for incremental spending on sales and marketing or product design and development. Second, global freight forwarders tend to roll out software in multiple phases, across geographies, meaning there is substantial latent growth in terms of additional seats and modules for existing customers. Finally, given the value delivered by CargoWise, we expect that WiseTech has substantial latent pricing power. Taken together, we believe WiseTech can grow CargoWise revenue in the midteens without having to attract new customers or develop new products, both of which it continues to do very successfully.