Added 4 months ago
#Bull Case

Like: Founder led and still own half of the company, niche market, high growth, high retention rate, SaaS, strategic acquisitions, continuous research and investment

Dislike: Current price

 
Added 6 months ago
#Bull Case

One of the things I like about Wisetech and disclosure (it's my biggest investment at 20% of my portfolio), is that it operates as a big fish in an industry that is so niche that the big boys like Oracle or SAP would ignore for the time being. I think Richard is doing something unique and i am sure if this was a NASDAQ listed stock, WTC would be rated even more. I'll be subscribing to the SPP but don't expect much.

 
Last edited 6 months ago
#Risks
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Just on the acquisition risk with WiseTech.  This is not your traditional roll-up model played out on a global scale, although it can look like that sometimes.  Richard White, the founder of the company, explains it well in this interview:

Richard White Interview with Tom Piotrowski, CommSec Executive Series, 15 March 2018

At about the 4 minute mark of that interview, Richard explains that they are making very targeted acquisitions, mostly in foreign language companies, to bring talented people and expertise into the WiseTech Global business, as well as the customer base that those companies bring with them.  To develop those sort of businesses in those countries from scratch would require a lot more time and effort - and money too in most cases - than to acquire existing businesses that have already done all the hard yards.  These businesses already have relationships with regulators, the government, and other businesses within those countries, which fast tracks the whole process. 

WiseTech already have the best freight forwarding and tracking software suite in the world, CargoWise One, and these acquisitions are now just plugging the remaining gaps for the most part, to give them complete global coverage.  Every country has its own laws and regulations, especially around freight coming into that country from elsewhere, and getting all of the compliance paperwork right and collecting and storing all of the necessary information, in the correct format, is vital for the CargoWise One platform so that they can deliver on their productivity promise.  Increased productivity and lower costs (due to accurate streamlined systems) are core promises that require a lot of local knowledge from every jurisdiction in which they operate (which is - all of them).  To build this global network mostly via acquisition is just the fastest and most efficient way of doing it.  

WiseTech Global aren't building this network to compete against other freight forwarding companies.  Those companies are WiseTech's clients.  WiseTech sell their software to those companies.  The idea is that CargoWise One will be so comprehensive and complete, in terms of geography, accuracy, relevancy and features, that every serious player in the industry will NEED to use it, or they will be at a competitive DISadvantage.  They're already almost there, hence why so many players in the industry (including most of the big players) use CargoWise One already.

[Continued]

 
Last edited 6 months ago
#Overview
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Wisetech provides software to the logistic industry, and has over 7000 clients in more than 130 countries. These include 24 of the top 25 global freight forwarders and 33 of the top 50 third party logistics (3PL) providers.

Wisetech has super high retention (<1% churn), high recurring revenue, and impressive margins (85% gross, 34% operating). Sales have grown at an average rate of about 38% per annum over the past 5 years.

It is virtually debt free, has a truck load of cash (approx $150m) and throws of plenty of free cash flow. It even pays a modest dividend.

The business benefits from strong network effects due to its strong partner network and the necessarily collaborative nature of supply chain execution. The business is consolidating its lead through significant ongoing R&D (which is over a third of revenue).

The company has made plenty of acquisitions, though these appear mostly small, strategic bolt-ons.  Wisetech has made 21 acquisitions since the start of 2017, across 24 countries.

Outlook (as of February 2018) was for Revenue of $207-217m (~38% growth). Was updated in May to between $210-220m. At this time, it also reiterated EBITDA guidance of between $71-75m (~35% growth).

Seems like an incredible company with strong competitive advantages and huge scope for growth. Unfortunately, it seems priced for perfection (and then some..)

 
Last edited 6 months ago
#Management
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Wisetech is led by executive director and CEO Richard White who together with Maree Isaacs, founded the company in 1994.

He is on a fixed annual salary of $1m and has 142m shares (almost half of all shares on issue).

He sold around 5.8m shares late last year. 

 
Last edited 7 months ago
#HY2019 Results
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Market didnt like results, but that's because it's become used to a regular increases to guidance.  (That's my theory anyway)

The fact is, the business continues to post eye-watering growth.

Let us count the ways:

  • revenue up 68% (48% compund over past 4 years)
  • EBITDA up 52%, with an increased margin of 49%
  • 89% of all revenue is recurring in nature and attrition is less than 1%
  • Relentless focus on product development
  • Expect FY revenue to be $322-$335m (45-51% growth)
  • Expect FY EBITDA of $102-107m (31-37% growth)

Have slightly increased my valuation

Results announcement here

AFR Article here

 
Last edited 6 months ago
#Risks, continued...
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To continue on about the rationale behind the acquisition strategy that WiseTech employ...

Richard White has devoted much of his time in recent years to developing a reliable and highly repeatable system to integrate these acquisitions into WiseTech Global.  He says that's he's an engineer and is focussed on systems, and repeatability - so systems that work consistently the same way every time.  He believes that he's developed such a system to enable seamless integration of all of these acquisitions into WiseTech Global. 

In reality, there are always some issues, including culture differences, the continued motivation of management when they become employees rather than employers/business owners, issues around valuation - including the value of intangible assets that are often written down in subsequent years in many cases, and in this case we can also add language barriers to that list.  Richard White tells us that he's got all of that under control.  Perhaps he has.  However, I think it's certainly prudent to assume that there is still significant risks attached to this strategy. 

I think the strategy looks sound.  I think they really have to go about it this way to achieve their objectives.  However, it would be a mistake to assume that this is without risk.

There are risks with all investments.  That brings us to likelihood and risk mitigation.  Regarding the integration risks and other risks associated with this extraordinary level of acquisition activity, it probably gets down to how good Richard White and his systems are.  He won't be able to completely eliminate the risks, but he has probably significantly reduced them, and mitigated the possible effects of those that remain.  Probably...

I don't own any WiseTech shares currently, having recently sold out because at these lofty levels the downside looks greater than the upside to me.  However, I really, really like this company and do really admire what Richard White has been able to achieve with WiseTech.  At more reasonable levels, like back closer to $10, I'd be back in.  They will have another correction at some point because there is a rediculous amount of growth priced in up here.  They are rising purely on momentum now.  However, that correction could come tomorrow, or in another 6 or 12 months.  I don't know.  The biggest risk with WiseTech currently is jumping on them at around $17 (where they are today) just in time to catch that correction.  That's the risk I'm most worried about.