Technology

WiseTech guides to higher FY22 earnings: Ord Minnett upgrades to Buy

Fri 15 Jul 22, 10:34am (AEST)
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Key Points

  • Due to strong top line growth and cost efficiencies ahead of expectations, the software business is now guiding to higher FY22 earnings
  • Since peaking at around $51.84 early December 2021, the share price has bounced back to $42.67 at the close yesterday
  • WiseTech founder Richard White attributes FY22 guidance upgrade to resilience within the company’s business model

While the tech sector has been largely out of favour, due to the impact of higher interest rates on valuations, WiseTech (ASX: WTC) receive a welcomed kicker at the open, up 6.23%, after announcing stronger than expected guidance.

Due to strong top line growth and cost efficiencies ahead of expectations, the software business is now guiding to FY22 earnings (EBITDA) of between $310m and $320m versus previous guidance between $275m and $295m.

Revenue is also expected to reach the top end of a range between $600m and $635m.

What does WiseTech do?

To the uninitiated, WiseTech has 18,000 customers across 165 countries and include 42 of the top 50 global third-party logistics providers and 24 of the 25 largest global freight forwarders.

The company’s flagship platform, CargoWise, provides customers with an end-to-end global logistics solution, executing more than 72bn data transactions each year.

Business model resilience

WiseTech founder Richard White attributes today’s FY22 guidance upgrade to resilience within the company’s business model and strategy through the cycle.

“We are upgrading our FY22 guidance, with our performance reflecting the Our product led approach and focus on our 3P strategy has enabled us to continue to deliver strong top line growth and drive significant operating leverage,” White noted.

What happened at the half year?

During the six months to 31 December 2021, WiseTech’s revenue increased 18% to $281.0m, and underlying net profit after tax (NPAT) increased 77% to $77.3m.

Much of the result can be attributed to increased market penetration, customer usage and adoption of technology, plus a price change to CargoWise.

The company ended the first half with $380m in cash and no debt and paid a fully franked dividend of 4.75 cents per share (CPS).

The Company will release its full year audited statutory results on 24 August 2022.

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WiseTech share price over 12 months.

 

What brokers think

WiseTech listed in 2016 at an issue price of $3.35 under its initial public offering (IPO).

Since peaking at around $51.84 early December 2021, the share price has bounced back to $42.67 at the close yesterday.

Shares in the S&P/ASX 50 company are up 40% over 12 months, but year-to-date (YTD) are down -28.43% in line with YTD falls on the S&P/ASX 200 Information Technology Index (ASX: XIJ) courtesy of the broader tech sell off.

Consensus on WiseTech is Moderate Buy.

Based on Morningstar’s fair value of $54.06 the stock appears to be undervalued.

Based on the four brokers that cover WiseTech (as reported on by FN Arena) the stock is currently trading with 13.3% upside the target price of $48.33.

Earlier this week, Ord Minnett upgraded WiseTech to Buy from Accumulate, while the target price of $52.00 is retained.

The broker highlighted a key divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks experiencing the brunt of the increase interest rates and the impacts of inflation.

Goldman Sachs maintains a Neutral on WiseTech (target price is lowered -15% to $45), flags weakening global trade conditions and notes the company’s 50% revenue exposure on a direct transaction basis.

Citi believes a reported slowdown in freight volume growth presents a headwind for WiseTech Global's transaction-based pricing model.

The broker retains a Neutral rating and target price of $46.35.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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