WiseTech Global: A rare blend of growth and value, yet challenges ahead

Company News

by Glenn Dyer

Global logistics software firm, WiseTech Global (ASX:WTC), has emerged as a unique stock in the market, embodying both tech-style growth and shareholder value, in addition to robust gains on the stock market.

WiseTech shares have surged by over 76% in the current year, up until the close of Tuesday's trading, and the 31% increase in the final dividend partly aligns with this climb in share price.

In the fiscal year ending June 30, revenue swelled by 29% to reach $819.8 million, driven by expansions in its core CargoWise business and new ventures within customs and land logistics.

Excluding acquisition-related expenses, underlying net profit leaped by 30% to $247.6 million for the year concluding on June 30.

The final dividend was established at 8.4 cents per share, contributing to a full-year payout of 15 cents per share for shareholders, marking a 34% rise from the previous year's 11.15 cents.

However, amidst these positive outcomes, the financial report contained a cautionary note about a temporary, as per the company's viewpoint, dilution in its 50% profit margin between the past financial year (when it dropped from 50% in 2022 to 47%) and 2026.

In response, the company initiated a $40 million comprehensive cost efficiency program, projected to yield net savings of $15 million in FY24, as revealed by WiseTech on Wednesday. The company noted, "Recent strategic acquisitions will continue to dilute the overall EBITDA margin while being integrated; however, WiseTech expects to return to 50%+ EBITDA margins in FY26."

Profitability was also enhanced through novel product releases and price adjustments to counteract the impacts of inflation, thereby generating suitable returns on investments. WiseTech plans to further pursue integration efficiencies, employing a targeted acquisition strategy to expedite CargoWise product development, expand its ecosystem reach, and bolster future returns.

This revelation might not sit well with certain investors who had long suspected that the company's high margin would be affected by the costs tied to rapid international expansion. As a result, the remarkable share price surge witnessed this year might experience a slowdown or even a reversal for a period.

WiseTech Founder and CEO, Richard White, did not explicitly mention the cost-cutting measures in the Wednesday release; instead, he praised the company's achievements, acknowledging its dedicated team's contribution.

White stated, "I am pleased to announce a robust FY23 financial performance, reflecting the broadening of our product offerings, sustained financial prudence, and heightened operational efficiency as we deepen our presence in our selected markets and execute our 3P strategy. This success is attributable to the exceptional WiseTech team - their devotion, determination, and industriousness."

He continued, "We are generating substantial value for our customers, underscored by our milestone global customs and compliance rollout agreement with the world's largest global freight forwarder, Kuehne+Nagel. This momentum persisted post-year-end, with FedEx confirming their intention to implement global customs alongside their ongoing global forwarding rollout."

White highlighted, "Our strategic acquisitions of Envase Technologies and Blume Global have propelled us into the Landside Logistics sector, furnishing us with breakthrough capabilities at scale and paving the way for significant growth opportunities."

Looking ahead to the new fiscal year, the company anticipates rising revenue and earnings, despite the earlier-mentioned margin dilution.

"Conditional upon the assumptions outlined in the WiseTech Global FY23 Results presentation, including EBITDA margin dilution resulting from a full year of the Shipamax, Envase & Blume acquisitions, the Company foresees FY24 revenue in the range of $1,040 million to $1,095 million (reflecting a revenue growth of 27% to 34%) and EBITDA in the range of $455 million to $490 million (representing EBITDA growth of 18% to 27%)."

Given the buried warning about weakening profit margins, it's no wonder WiseTech shares fell 19% in early trading Wednesday.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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