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WiseTech lifts half-year profit but Morningstar remains bearish

Emma Rapaport  |  20 Feb 2019Text size  Decrease  Increase  |  
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Australian tech darling WiseTech Global (ASX: WTC) delivered a 48 per cent jump in net profit for the first half and a slight upgrade to revenue forecasts, but Morningstar remains bearish on the stock.

The logistics and supply chain software developer posted net profits after tax of $23.1 million, up 48 per cent. Total revenue rose 68 per cent to $156.7 million and operating profit was up 69 per cent to $35.9 million.

Earnings before interest, tax, depreciation and amortisation rose 52 per cent to $48.5 million, while EBITDA margins fell 3 percentage points to 31 per cent.

WiseTech chief executive Richard White said the company's commitment to expanding its global growth and industry penetration, driven by geographic expansion, is helping it deliver growth to shareholders.

White singled out the firm’s supply chain software product CargoWise One as a revenue engine.

"The strength of our CargoWise One global platform is reflected in its 100 per cent recurring revenue and annual customer attrition rate of less than 1 per cent and our earnings before interest, tax, depreciation and amortisation margin is 49 per cent (excluding acquisitions)," he said in an ASX statement.

"CargoWise One continues to be a unique powerhouse technology changing global logistics for the better."

Market ‘getting carried’ away with WiseTech value

Morningstar equity analyst Gareth James welcomed the company's strong revenue growth but said the overall result was weaker than he anticipated. In particular, he pointed to the number of small global acquisitions WiseTech has made over the year – 11 in total, on which monies are still owing.

"If you back out the acquisitions, the company's organic revenue growth was more like 15 per cent," James said.

He also remains concerned about the nuances in the way WiseTech reports its financial reports, particularly around the expensing of its research and development, which he says creates confusion for shareholders.

In total, the company spent $51.2 million on research and development over the half and has committed to expenditure of $100 million in 2019.

Broadly, James describes WiseTech as a great company with great leadership but worries the market has gotten too carried away with the stock to the point where it has become overvalued.

"High growth 'hot stocks' like WiseTech and AfterPay have experienced strong share price growth over the last couple of years. Investors get very excited about them for a period, then depressed. But for me this is just sentiment," he said.

"WiseTech's market value is not supported by underlying profitability and the first half result doesn't change that."

The stock was caught up in the global tech sell-off at the end of last year but has been on a tear since early January, rising 37.34 per cent to $23.39 when the market closed Tuesday.

Since listing in mid-2016, the stock has gone from a market capitalisation of about $1 billion to $7.05 billion today.

WiseTech has made another update to its full-year revenue guidance, implying revenue growth of 45-51 per cent to between $322 million and $355 million. EBITDA guidance was kept on hold, expected to be in the range of $102 million and $107 million.

White said strong momentum and significant growth of the group during 1H19 and the power of CargoWise One will, among other things, give them confidence to expect growth.

Markets appeared disappointed by the lower-than-expected earnings before interest, tax, depreciation and amortisation and falling EBITDA margins, sending the stock down 14 per cent to $20 in early trade.

Morningstar is maintaining a fair value estimate of $6.60, making the stock overvalued.

WiseTech declared a fully franked interim dividend of 1.5 cents per share, up 43 per cent from $1.05 in the first half of fiscal-2018.

is an editor for Morningstar.com.au

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