BUY HOLD SELL – Wisetech (ASX: WTC)
Wisetech (WTC) offers a cloud-based solution to the global logistics industry. Enabling and empowering the world’s supply chains the glossy tagline on the first page of its annual report. Half-year results are on February 23. Full-year guidance of $600-635m requires 18-25% revenue growth which was reaffirmed back in November. Peak margin growth was one concern commented on following its full-year results in August last year. One important point to take away from its August results was the very high level of recurring revenue it generates. Recurring revenue in FY21 was 90% of total revenue. That is impressive. Sticky customs are important to long term success in any business. Customer loss was below 1% for the ninth year in a row. COVID has essentially amplified the strategic value of its signature product, CargoWise. Revenue for CargoWise was up 26% in FY21. The product allows companies to execute complex transactions and manage operations on a signal database. It helps lower operating costs, reduce IT/infrastructure costs and assists in scaling according to the brochure. The structural shift accelerated by COVID has positioned Wisetech well. The spotlight on logistics and global supply chains has never shone brighter, been more critical or been as visible in ensuring the movement of goods around the world. Limited capacity and congestion have meant logistics providers are accelerating the replacement of old in-house systems. There is also a significant level of sector consolidation happening. WTC benefits from this activity as its customers are either the acquirer, or its platform is in place in the acquired business and then adopted by the acquirer.
- ROE of 16.9% is ok, expected to improve next year then drop back a touch.
- Good to see EPS growth outpacing revenue growth.
- A PE of 96.5x is not cheap but we know you are paying for future earnings given its status as a growth business.
- A yield of 0.3% is a bit irrelevant. This is not what you’d consider an income stock.
- There are no obvious listed competitors on the ASX. Panasonic subsidiary Blue Yonder, is one of its main peers.
- Panasonic acquired the business for US$7.1bn back in April last year. WTC's market cap is more than $15bn for comparison.
- Based on a few testimonials, WTC is considered a better product.