It's not often you see a multi-billion dollar company jump 27% in one day! (at time of writing)

Wisetech delieverd a 24% jump in revenue in constant currency terms at $507m, at the top end of guidance. (Underlying) Net profit more than doubled to $105m and the company produced $139m in free cash flow. 

Cost reductions and volume recovery saw margins lift. Importantly, most of the revenue growth was from existing operations. ie organic. 

The balanced sheet is strong with $315m in cash and no debt.

The company is forecasting another year of strong growth, calling for as much as 25% revenue growth and 38% EBITDA growth for FY22. They have secured some great wins, such as FedEx post, and have a strong sales pipeline.

There have been concerns in the past over some of their accounting treatments and reliance on making lots of acquisitions -- but strong free cash flow and a good demonstration of organic growth alleviate that to some extent.

Still, shares are now on a PE of 140..

Will share some notes in a valuation.

Full results here

The market likes Wisetech's results.

• Revenue up 23% in line with  guidance
• EBITDA up 17%
• 38% of revenue was from acquired businesses
• NPAT flat at $52.6m due to increased D&A. With new shares issues, per share earnings were down 4% to 16.4c
• Cash at $223m and $190m in undrawn debt
• Reduced trade volmues probably took $10-20m off second half revenue
• Expecting roughly 9-19% revenue growth in FY21 and 22-42% EBITDA growth

At face value, results appear very strong and the business very resiliant.

But as noted elsewhere, there are concerns over various accounting issues (capitalisation of a large amount of R&D and customer acquisition among others. See here for the Bucephalus Short thesis).

I simply havent done the deep dive to really have a firm view one way or the other. Even if the issues pointed out by the shorts are largely correct, so long as Wisetech can continue to raise cheap capital and successfully integrate and upsell new customers, it could still ultimately succeed.

If the share price weakens considerably, it'll be much harder to sustain the current aggressive acquisition led model and there is much greater dilution potential for existing shareholders.

On latest numbers, shares now trade at a PE of 152 and P/S of 18. Though that's ostensibly high, if the business is indeed cash profitable and considerably larger in 5-10 years, with attractive margins, there's actually a reasonable argument for value. They have a great position in a very large and fast growing market and favourable operating leverage potential.

Of course, if growth ambitions fall short, and the expected SaaS scale benefits -- in terms of real, fully accounted for cash operating costs -- don't materialise, shareholders will likely face significant loss. 

For me, the risk/reward dynamic is not attractive enough at the current price.

Results presentation here 

Wisetech has reaffrimed its full year guidance, sayimg it expects revenue growth of 21-29% in FY20, with EBITDA to increase by between 5-22%.

The company said it has $230m in net cash, with a $390m in undrawn debt facilities. It does not intend to raise further cash.

Wisetech said it expects its business to remain resilient, but said its customers faced a great dela of uncertainty.

You can read the full update here

Reported numbers were strong for the first half, with revenue up 31% and net profit up 22% (excluding reduction in contingent liabilities). Margins remained strong (despite a big increase in expenses), retention high, and core growth of Cargowise One platform also solid (up 24%).

Difficult to fault at face value really. Although the Short-seller's argue that most growth is really acquired, a lot of expense is hidden from the income statement due to high development capitalisation and acquisitions, and that the 'deal machine' that is Wisetech is enabled only by a high share price that allows them to tap the market for cheap cash.

Still, if you think that acquisitions will ultimately prove an efficient and quick way to gain entry into new markets and capture clients, and that the business will manage to eventually scale well under a fairer recognition of costs, and ultimately be the dominant software for the global logistics market, there's a not unreasonable bull case here -- especially if shares can maintain a healthy market premium to help underpin growth funding.

It's a tough one; i think both cases make some fair points.

Then you have the huge drop in the outlook, which has resulted from the Corona Virus impact to China (which accounts for 16% of global GDP and is of course a major logistics hub). 

Wisetech have forecast full year revenue of $420-450m (up 21-29%) and EBITDA of $114-132 (up 5-22%). This compares to prior guidance of $440-460m for revenue and $145-153m for EBITDA. That's a drop in guidance for revenue and EBITDA of 3.3% and 17%, respectively.

Of course, when pandemic related issues abate, there'll likely be a big tick up in logistics activity, but exactly when and by how much is unknown. Nevertheless, it's not unreasonable to treat this imapct as a legitimately one-off, and doesn't itself impact the existing long term Bull or Bear cases.

I personally think there's an excellent business at the core, but am mindful of the risks associated with the existing growth strategy and some of the legitimate financial reporting concerns.

Results presentation can be seen here

After today's drop, shares are still on a forward P/S of ~17, or 61x forward EV/EBITDA (excluding contingent liabilities). Stll too rich for me.

The short thesis on Wisetech from Hong Kong based research house Bucephalus.

https://www.youtube.com/watch?v=XonmN_3nPAs

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. 

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..)

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