Delivering on time

1H23 RESULT

Need To Know

• EBITDA in-line with consensus, up 36% (42% underlying) to $187.3m
• Signed customs rollout with world’s largest freight forwarder, Kuehne+Nagel
• Underlying guidance reaffirmed, but altered to include recent M&A activity 
• Dividend up 39% to 6.6cps (20% payout ratio)

WiseTech continues to deliver, with group revenue growing 35% (32% ex-FX and acquisitions) to $378.2m, driven by CargoWise growth of 50% on the back of existing customer growth, and new Large Global Freight Forwarder (LGFF) rollouts. Most significantly was the signing of a customs rollout with Kuehne+Nagel (signed in 2H23) and is now contracted with 11 of the top 25 LGFF. WTC noted customer attrition rates are still <1%, reflecting the strong product proposition and offering.

Margins expanded as overall operating expenses were down 3pp as a % of revenue, excluding M&A costs ($10.1m in the half). R&D rose to 30% of revenue, reflecting investment and hiring activity to drive future growth, delivering 522 product enhancements during the period. Sales and marketing expenses fell reflecting a more targeted approach, and now represent just 6% of revenue. General and admin costs excluding M&A fell to 13% of revenue. WTC already boasts ~50% EBITDA margins, however can now reach even greater operating leverage as it continues to grow and scale.

The balance sheet remains strong, with a net cash position of ~$490m, however the debt facility has been expanded to $475m, largely to fund the recent acquisitions. WTC maintains ~$400m of liquidity post the acquisitions. Operating cash conversion also rose in the period from 98% to 109% driven by positive working capital changes due to a one-time decrease in deferred revenue from aligning non-CargoWise commercial models to shorter billing cycles. 

Underlying guidance was reaffirmed, however altered to reflect recent acquisitions. The three (Shipamax, Envase and Blume) are expected to contribute an extra $35-42m to revenue, and a negative -$3-5m EBITDA impact, including integration costs. For FY23, one-time M&A costs are expected to be $30m ($10m already included in 1H result). The resulting end guidance is $790-$822m revenue and $380-$412m in EBITDA.

Investment View

WTC’s result was in-line, although recent acquisitions dilute the short-term margin and present integration risks. The longer-dated strategy is still solid, and the recent signing of Kuehne+Nagel is a significant positive. However, trading at ~65x forward earnings, we struggle to be more positive on the stock. We retain our Hold recommendation. 

Figure 1: Solid growth across revenue and EBITDA

Figure 2: WTC trades cheap to its own 5-year history, but difficult to justify in a higher interest rate environment