The Short Attack on Wisetech (WTC:ASX)

Market darling Wisetech (ASX:WTC) is the biggest listed Australian tech company and a leading provider of software solutions to the logistics industry globally. They develop the software solutions that enable logistics service providers to facilitate the movement and storage of goods and information, domestically and internationally.

Today, two hours after market open, a short seller report from research house J Capital was released and quickly sent the share price down 10% before Wisetech requested a trading halt. The following shows the main accusations: a possible 178% overstatement of profit since listing, and disguising of slowing organic growth.

There is also an interesting breakdown of a calculation the company made comparing revenues of acquired platforms. This allegedly involved comparing the sum of the last two years of acquired revenue to just that of the previous year, giving a larger than realistic 200% increase.

The legitimacy of the claims will take some time to determine and there is, of course, two sides to every story. WiseTech will no doubt be working feverishly to defend the allegations and provide a counter-narrative. As such, the decision to suspend trading in the company’s shares is certainly a sensible move.

Is Wisetech a sell?

The business has many attractive characteristics in the eyes of investors, as it’s largely software based product has very low attrition, a high proportion of recurring revenues and high gross margins. Although the history of acquisition led growth is rife with disappointment, WiseTech has ostensibly managed to prosecute the strategy well, so far (these allegations notwithstanding).

They are also clear leaders in their industry and have significant market penetration already, calling 43 of the top 50 third party logistic companies, and all of top 25 global freight forwarders their customers.

As a result, Wisetech has seen a 49% compounded annual growth rate in both revenues and operating profit (EBITDA) since FY15 – certainly well above most ASX listed companies. However, such growth has resulted in investors placing the $9.51 billion company on a highly elevated P/E multiple of 170, even after today’s fall.

By “normal” valuation metrics, it would seem the potential downside is significant – especially if the legitimacy of the books is under question. On the other hand, though, it must be remembered that with FY20 guidance of $450 million revenue (up 29%), and $149 million EBITDA (up 38%), such a premium may well be warranted if the high rate of growth can be sustained.

Wisetech is currently ranked at #36 on Strawman, but is trading well above the community consensus valuation. Create your free member profile to dig deeper into what other investors are saying.

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