Man overboard

RESULTS

Need To Know

• FY23 result was muddied by one-off acquisition costs, however overall in-line with expectations
• FY24 guidance is well below consensus, with EBITDA coming in -13% at the midpoint, driven by underperforming recent acquisitions
• EBITDA margins not set to reach ~50%+ until FY26, where consensus was expecting >50% in FY25

FY23 result overview vs consensus

Revenue $817m vs $812m

EBITDA $412m vs $401m

NPAT $248m vs $242m

DPS 15.0cps vs 14.0cps

Investment Implications

The FY23 result itself was strong considering the macroeconomic backdrop, however the guidance for FY24 was well below expectations. The main culprit was underperformance from recent acquisitions, where the margins are more dilutive than anticipated. FY24-26 EBITDA margins as a result are likely to be trimmed, with WTC expecting a return to 50% by FY26, where the market was expecting >50%+ by FY25.

Slower than expected organic revenue growth for CargoWise (+37%, below 38-44% guidance) was the other blip in the result, as the expected rollout of the Kuehne & Nagel customs product is taking longer than anticipated given the complexity. The customs product is gaining traction faster than expected, with FedEx signing a recent deal. This provides potential upside risks to forecasts given 2 large players are now planning on utilising the platform, demonstrating clear value and competitive advantage.

The overall revenue growth itself was predominantly driven by both price increases to offset inflation, and through the launch of new products during the year, seeing strong customer adoption. Of the $141.8m increase in CargoWise revenue on FY22, $127.7m was from existing customers, reflecting an industry leading attrition rate of below 1%.

Underlying organic EBITDA margins rose from 51% to 53%, however were overall impacted by dilutive acquisitions during the period, seeing the actual margin fall to 47%. This is anticipated to fall further in FY24 to 44-45%, although 2H24 is set to return to growth momentum at 47-48%. FY24 revenue for the Shipmax, Envase and Blume acquisitions are in-line with expectations for $125-150m, however margins are falling to ~5% on higher cost investments set to drive future growth. Strong R&D remains a feature of WTC as it invests in product growth, with R&D/Revenue sitting at 32% in FY23 and is expected to be similar moving forward. Product development is now 60% of WTC’s total headcount.

The FY24 guidance missed very strong market expectations, which had helped fuel a significant share price rally this calendar year. Revenue growth of 27-34% is ~3% lower than consensus expectations ($1,067.5m vs ~$1,097m) at the midpoint. CargoWise revenue growth is expected to be 34-43%, however this includes 14-18% growth from acquisitions, meaning underlying growth is implied at 20-25%, well below historical growth rates of >30%. EBITDA was the main disappointment, with margins expected to be 44-45% and EBITDA expected at $455-490m, well below the ~$542m the market was looking for. With EBITDA margin recovery to 50% not expected until FY26, we expect multi-year downgrades to consensus earnings.

Investment View

The market had appeared to get ahead of itself and was pricing WTC for a perfect result and an upgrade, which unfortunately it could not deliver. We had called out the acquisition integrations as a key risk to margins, which had stopped us from becoming more positive on the stock (that and a PER multiple >80x).

The signing of FedEx onto its customs product and the continued rollout of Kuehne & Nagel presents sustained revenue growth momentum. WTC also called out that the FY24 result is likely to be split more towards the 2H (54%) where we expect 1H24 margins to remain under pressure. There are clearly continued upside risks for WTC to deliver upgrades should it land additional large contracts, however we believe this is largely priced into the multiple.

Given higher bond yields, margin pressures, integration risks and an already well above market multiple (even adjusted for growth rates), we struggle to become more positive, and prefer to be patient for better prices to build a position. We retain the Hold rating.