WiseTech shares dropped to a near 20% in a single session in November, after the company revised down its full-year guidance following a raft of allegations against its then-CEO Richard White that led to him stepping down after 30 years in the role.

Founded in October 1994 and headquartered in Sydney, Australia, WiseTech Global Limited (ASX: WTC) is a leading provider of software solutions for the global logistics industry. The company’s products enable global logistics companies, from small domestic and regional logistics providers to large multinationals, to manage, track and trace freight transportation, customs clearance, compliance and warehousing. The company's solutions are used by over 17,000 customers in 183 countries. Geographically, Europe, Middle East and Africa accounts for 36% of sales, North and South America for 36% and Asia Pacific for 28%. The 10 largest customers account for 25 % of sales and ensure a broad distribution of revenue among key accounts.

3P strategy, enhances growth prospects of WiseTech

With the vision to be the operating system for global logistics, the company had initiated the 3P system, which includes Product, Penetration and Profitability. Having consolidated its dominant and highly profitable position in the Australian and New Zealand (ANZ) domestic market, the company aims to replicate this success in the wider international markets.

On the Product end, WTC announced three breakthrough products - CargoWise Next (a next-generation platform), Container Transport Optimization (for optimizing container movements), and ComplianceWise (with its functionality in international trade compliance and export and import classification assistance), has significantly influenced the performance of the company. Group R&D investment was increased by approximately 41%, representing around 35% of total revenue. Additionally, capitalized development surged by around 46% to AUD195.9mn, with approximately 53% of the total research and development investment being capitalized during FY24. The company anticipates this trend to continue, with capitalized development anticipated to remain in the 50-55% range.

On the Penetration side, the company completed a new rollout with the Top 25 Global Freight Forwarded Sinotrans and LGFF (Large Global Freight Forwarder) rollouts. The company had a sum of 52 LGFF rollouts and more than 50% of the Top 25 Global Freight Forwarders as of June 2024. Regarding Profitability, the efficient operating model and strong financial discipline continued its momentum of improving the operating leverage and margins. The cost control strategy achieved its target, delivering AUD40mn annual run rate savings with AUD14mn net cost reduction in FY ended Jun-24.

Long term prospects in place driven by value-based products and decent financials

Riding on the 3P strategy, the company has delivered decent results in FY24, with revenue growing by 27.5% YoY to AUD1,041.7mn. On an organic basis, revenue increased by 15%, with the remaining growth achieved through M&A and FX tailwind. EBITDA increased in sync to AUD495.6mn, reflecting 28% reported and 16% YoY organic growth. EBITDA margin increased by 40bps YoY to 48%, while on an organic basis margin stood at 54%, up 20bps YoY.

The company hit the headlines last month when its founder and CEO, Richard White, stepped down after 30 years in the role due to inappropriate behavior. He was replaced by CFO Andrew Catridge as interim CEO. The management restructuring and the delay in the launch of the Container Transport Optimizer in H2FY25 forced management to lower its revenue guidance to AUD1,200–AUD1,300mn (down from AUD1,300-AUD1,350mn) and EBITDA of AUD600-AUD660mn (down from AUD660-AUD700mn) for FY25. However, the company said that other key products – ComplianceWise (released in Q1 of FY25) and CargoWise Next (release in progress) - will provide revenue growth in the near term and offer long-term value to its customers. Furthermore, with the 3P strategy and the leadership of the interim CEO, the Group seems to be able to weather the current situation and achieve its long-term goals.

Acquisitions to support the growth momentum of the company

In addition to organic growth, the company plans to pursue inorganic growth through acquisitions. With this intention in mind, the company completed two vital acquisitions in FY23: Envase Technologies and Blume Global Integration, which were progressing well as planned. The previous acquisitions in Bolero and Shipamax contributed to overall revenue expansion in FY23 and have improved CargoWise’s digital documentation and straight through processing capabilities.

In FY24, WTC finalized the acquisitions of MatchBox Exchange, which possess capabilities in providing container transport optimization to CargoWise (its flagship product). This acquisition established customs footholds in Mexico and Finland. This added value to the company portfolio. Overall, the company has a strategy on acquisitions, which focuses on tuck-in, foothold and strategical significant targets. This strategy aims to accelerate the CargoWise product development and ecosystem reach.

In summary, WTH has a strong track record in terms of its financial performance and is expected to improve its performance metrics in FY25-FY27. With sustainable growth being one of the company's key strategies, the company has made lucrative and successful acquisitions over the years. WiseTech shares are up more than 65% since the beginning of 2024 and currently trade at a P/E ratio of 119x and EV/EBITDA of 67x, compared to the 5-year historical average of 89x and 46x, respectively. 11 out of 17 analysts covering the stock have a “Buy” rating with an average price target of AUD131.5, indicating limited upside potential. Potential risks such as negative headlines or further new discoveries of misconduct by former CEO, cybersecurity attacks, failed new customer acquisition and data center capacity constraints may impact operations and therefore financial results.