Under the Spotlight AUS: WiseTech Global Ltd (WTC)
Doing business across borders opens up new markets for companies. Bringing these opportunities to life often requires some help transporting goods and understanding bureaucracy. Facilitating smooth sailing is the aim of WiseTech’s software for the logistics industry. Let’s put it Under the Spotlight.
From dishwashing to playing in bands and becoming a refrigerator technician, Richard White’s journey into the logistics industry took several twists and turns. Despite success as a guitar technician for bands like AC/DC and the Angels, he was looking for more scalable business ideas. He found an entry into the software world by using computers to build lighting control systems and ended up as a consultant.
His first view of supply chain management was during a contract in the early 1990s. After working with several freight forwarders, he noticed there was considerable fragmentation in the sector. Sensing an opportunity in the field, these experiences led to the founding of WiseTech ($WTC) together with former co-worker Maree Isaacs in 1994. They’ve remained at the helm of the firm, with White as CEO and Isaacs as an executive director.
This attempt at scaling resulted in an industry leading business and a rather extensive guitar collection for White. By targeting the pain points of the global logistics industry, WiseTech has become one of Australia’s tech success stories and eventually listed on the ASX in 2016. Their operating system helps customers keep track of their goods, deal with compliance and various customs requirements across borders.
WiseTech’s flagship product is the CargoWise platform. It aims to provide firms with real-time information to manage their operations on a centralised database with cloud technology. There’s a clear need for this service in an environment where delays come at a cost and the failure to meet regulations attracts financial penalties. Operators are also facing lower margins and ever-changing rules that make growing e-commerce volumes harder.
The focus is really on improving productivity, with automated processes and having useful data on hand reducing risks and enhancing efficiency for clients. CargoWise is characterised as an app store where customers can find solutions targeting various areas, instead of a customised service. Considering the international nature of the industry, there’s no surprise it’s available in 30 languages and licensed across 170 nations.
They count 24 of the top 25 global freight forwarders amongst their customers. These are specialists focused on shifting goods between two locations and often act as intermediaries between other transportation services. This extends out to 41 of the 50 of the largest third-party logistics providers. The majority of WiseTech’s business is outside of Australia and affected by foreign currency fluctuations.
WiseTech gained market share through multiple acquisitions and has established a dominant position in the industry. However, not everyone was convinced of their early successes. In 2019, short sellers accused the firm of manipulating their accounts to make profits appear artificially high. Critics claimed these takeovers masked a lack of organic revenue growth. The business has admitted that not all these new units were winners and that they would provide greater transparency around their earnings in the future.
The emergence of the COVID-19 pandemic saw the firm downgrade results forecasts. WiseTech’s access to shipping port data gave them rapid insights into trade flows. The team turned focus inwards to integrate its existing purchases, concentrating on large enterprises. This new strategy proved fruitful and helped regain the trust of analysts. Results from FY21 showing an 18% increase in revenues and 149% growth in free cash flows, despite the time period being known for supply chain shocks.
WiseTech has regained their appetite for buying and is targeting larger deals in new areas of the logistics sector. Recent forays into land transport in the U.S. have come at a significant cost, with the firm paying $325m for Envase Technologies and $600m for Blume Global in 2023. They usually rewrite the software of their new assets into the existing CargoWise platform, rather than using plug-in methods. This involves extra time and funds. The five years to H1 2023 saw $775m invested into product development and innovation.
The high R&D spend has been a factor behind recent price rises by the business. Customers will weigh up whether they gain enough value from their services at an increased cost. However, given WiseTech’s dominance they may have few other options. The signing of their first global customs management contract with Kuehne + Nagel in February 2023 further cemented this position to many. Another leading freight forwarder DSV has already been a CargoWise client for years, while Kuehne + Nagel previously built their own system.
This could lead to others following suit, although some question whether this pace of expansion is sustainable. For H1 2023 net profits after tax grew 40% to $108.5m and the increase in organic total revenues was 32%. They’re quite reliant on CargoWise, which accounted for just over three quarters of these revenues, but almost all of the growth. WiseTech’s execution of their 3Ps strategy, covering product, penetration and profitability, has been impressive so far.
Their positive share price performance also reflects these achievements. However, some might wonder if they’ve missed the boat to capture the high returns and the business could be overvalued by this point. The size of the global logistics industry is expected to expand from US$10.41t in 2022 to US$14.08t by 2028 and the role of technology is set to become even more critical.
While WiseTech’s market share might not be saturated just yet, there could be choppy waters ahead as trade flows tend to decline during recessions. Investors could be rewarded for joining them on the journey, but might also have to spend some time sailing across rough seas.
This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.