follow up article from MS

this sounds credible to me. I don’t expect any magic for many years, but I think WTC has become a bottom drawer investment for me. Will continue to monitor periodically but reckon this is one of the best Quality stocks on the ASX now

WiseTech (WTC) plans to acquire publicly listed e2open for USD 3.30 per share in cash, an enterprise value of USD 2.1 billion. Funding is from a new fully underwritten USD 3 billion debt facility, from a nine-bank syndicate.

The transformative acquisition is larger than WiseTech’s prior 55 combined. It expands from the software from freight forwarders and carriers now to their customers, the beneficial cargo owners.

E2open is faltering. It struggled to create synergies through its many acquisitions, especially between its products for freight forwarders—such as BluJay—and the beneficial cargo owners. High debt created further pressure.

We view the acquisition as opportunistic given e2open’s falling share price. We also expect integration to be challenging, requiring significant future financial and management resources.

WiseTech expanding in every direction

We believe acquiring BluJay, CargoWise’s closest global competitor, consolidates the freight-forwarding software market. It also prevents a downstream competitor, such as Descartes, from acquiring the business.

However, further evidence is needed to conclude that WiseTech will win beneficial cargo owners and efficiently merge the new software with the existing freight-forwarding solutions.

WiseTech is now expanding in force in every direction from its core freight-forwarding solution. This includes downstream software for land-based transportation and upstream software for cargo owners, and software for carriers.

The acquisition should close in the second half of calendar 2025, post-approvals. Sufficient shareholders have agreed to the deal. Fiscal 2025 guidance is unchanged, save a USD 40 million one-time cost related to the transaction.

The acquisition significantly expands WiseTech’s vision and addressable market. The company now aspires to also become the operating system for global trade, in addition to the previous vision of becoming the operating system for logistics. 

This means the company will now look to move further up the value chain into the procurement of supply chain services. Historically, WiseTech has primarily served freight forwarders, who work on behalf of cargo owners to co-ordinate the movements of goods, as these goods are moved along the supply chain by carriers, which own the physical assets like ships, airplanes, trucks, trains, and warehouses. 

Beneficial cargo owners use different software to procure these services, which is where e2open plays. WiseTech now intends to bring together freight forwarders, carriers, and beneficial cargo owners into a single, multisided marketplace.

Easier said than done?

Although the vision is appealing, we believe it is easier said than done. WiseTech has previously tried to do something similar with CargoWise Neo. E2open itself has also tried to combine the same elements. Both have been unsuccessful so far.

In an ideal world, a cargo owner, such as a retailer, could easily compare freight forwarders and carriers on price and service for a certain shipment, select the parties they would like to work with, and the information related to the shipment would be seamlessly shared with the selected parties. 

This means information would follow goods as they are moved all the way from the factory where the goods are produced to the final place of consumption, as goods are passed between trucks, trains, ships, airplanes, ports, and warehouses. But this requires dozens of different parties along the supply chain to be on the same system or to have systems communicating with each other, which is highly unlikely. 

We therefore expect WiseTech to try to bring more of these parties together on the same platform. Although we rate WiseTech’s chances of success as higher than e2open’s, due to the strong position it occupies in international freight forwarding, at the center of the supply chain, we still view this as a multidecade journey.

Timing for expansion looks right

We do believe it is the right time for WiseTech to attempt such a large expansion. 

Usually, companies try to expand their addressable market before properly locking in their existing markets. This often results in companies getting stretched too thin, as they’re fighting multifront wars. But WiseTech has essentially locked in the market for freight-forwarding software, in our view. 

WiseTech now works with the majority of the Top 25 freight forwarders, as per the authoritative Armstrong & Associates rankings. These companies typically set the standards for the broader industry, meaning we expect WiseTech to continue acquiring additional freight forwarders as customers. 

Additionally, given CargoWise customers consistently outperform their competitors because of the CargoWise platform, we see a second highly predictable route toward market dominance, namely through CargoWise customers taking further market share.

Moreover, with the acquisition, WiseTech is also acquiring its largest direct competitor in global freight forwarding, BluJay. We expect WiseTech will transition BluJay’s customers over to CargoWise over the coming years, thereby further consolidating the market and increasing the likelihood CargoWise becomes the default software for the industry.

Solid track record and sound balance sheet

There are other additional benefits which are readily foreseeable. The first is generic cost-optimization. WiseTech expects to generate over $50 million in annualized cost-savings at the end of the second year of ownership.

Given WiseTech’s track record with prior acquisitions, we believe these estimates are credible. These would consist of things like consolidating back-office functions and removing public market costs. However, given the majority of the e2open business consists of products that have little synergy with WiseTech’s current product suite, we don’t currently forecast further cost-optimizations beyond that point.

Despite the large debt raising, we believe WiseTech’s balance sheet remains sound. We calculate WiseTech’s EBIT/interest coverage ratio to be over 4 times in fiscal 2027, the first year of full-year ownership. Following the acquisition, WiseTech expects liquidity of around $700 million, from cash and undrawn debt

From Morningstar

This is one I sold too early and am struggling to overcome my anchoring bias to buy back into. Rationally, I know it’s reasonably priced currently, but…..sigh

In its full year results, WiseTech’s (ASX: WTC) guidance on its margin growth and earnings for fiscal 2024 disappointed the market, spurring a 20% fall in its share price on the day of its profit announcement.

However, there was plenty to like in its results. WiseTech reported a 30% lift in net profit while its margins grew 28%. The company also reported a 31% increase in its final dividend.

It’s a business that Morningstar analyst Roy van Keulen has been bullish on and has previously highlighted even describing it as a “kingmaker”. With the company a little sombre on its outlook, is the future still rosy for the logistics software business?

Consistent high investment returns

Despite the disappointing guidance, what impressed van Keulen most about its fiscal result was WiseTech’s “continued ability to generate high returns on its investments”.

In his analysis on WiseTech’s fiscal 2023 result, the Morningstar analyst calculated the payback time on the company’s investments “remains among the best in the world and continues to exceed our expectations”.

In particular, WiseTech spent $226 million on sales and marketing and product design and development in fiscal 2022, which resulted in $152 million in incremental organic revenue for fiscal 2023. On van Keulen’s calculations, this exceeds his expectation of a 1.6 year payback.

“We are unaware of any publicly listed SaaS businesses with similar business efficiency.”

Based on management guidance, the Morningstar analyst estimates that WiseTech’s payback period for fiscal 2024 will again be “world-leading”, at around two years. This is despite recent purchases in North America of Envase Technologies and Blume Global

“The slower payback period reflects the larger share of WiseTech’s acquired businesses, which have lower business efficiency compared with WiseTech’s in-house developed CargoWise business”.

Exemplary capital allocation

This exceptional return on investment goes hand-in-hand with WiseTech’s “exemplary capital allocation skills”. Capital allocation is key for businesses, minimising unnecessary spend, ensures investors get a good return on their investment.

“Throughout its history and especially since the COVID-19 pandemic, WiseTech has demonstrated a remarkable inclination toward investing countercyclically, which has been antithetical to the broader tech sector,” van Keulen said.

“Whereas the broader tech sector hired aggressively after the onset of the pandemic, at elevated salaries, and acquired businesses at high multiples, WiseTech stopped its M&A activity and held its operating expenses flat through 2022.”

However, when interest rates began inching upwards and tech companies started selling off and laying off staff, “WiseTech, acting in line with the saying “buy when there is blood on the street” resumed its M&A activity, making its two largest acquisitions to date, and expanded headcount in product design and development by 80% through fiscal 2023”.

van Keulen expects this acceleration in product investment to continue delivering high returns for WiseTech, as a product-led company, both from improvements to its current product suite as well as from new product launches, such as the newly released CargoWise Neo and Warehouse Suite

Richard White has been consistent and heavy seller of shares on-market over the last few months

In March he had the following:

Direct: 4,023,716 Indirect: 121,877,028

There have been 14 separate announcements of him selling on market.

He now retains:

Direct: 2,250,646 Indirect: 121,539,911 (so he has about 80 million dollars in cash burning a hole in his pocket now)

On the flip side, Morningstar now rate Wisetech as a 5 star buy. You'll have to look up their criteria for this.

The economist recently published their "Money talks" podcast on supply chains and one of the main points was its increasing conversion to a modern, cloud based system from legacy systems. For those of us who were members of MFPro when Joe and Matt were first introducing WTC, much of the bull case revolved around this huge swing (similar to the change of mainframe to cloud based servers) which is still in evolution, and it being in a market leading position to benefit from this.

I haven't really kept up with where WTC are, and how they have been tracking. It got too hard to compare like with like, given COVID and then massive supply chain disruptions. Plus there was all this FUD around the high acquisition rate and likely indigestion from so many different new software systems. However, as a company that fits many of the criteria that Strawpeople like, it is surprising how little discussion it generates. Maybe because of its size.

This is one company I hope to understand a bit better of the next year or so, as it may well get beaten down even further in a global recession, whilst quietly laying the groundwork to be extremely profitable when trade picks up again.

Would love any insights others may have