Targets Jump For Embattled WiseTech

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Unwanted media attention has led to an earnings downgrade for WiseTech Global, but brokers have taken the opportunity to reassess valuations and significantly lift target prices.

-WiseTech Global downgrades FY25 guidance
-Product launch delayed due to CEO fallout
-Analysts shift out revenue growth expectations
-Model reassessments result in significant target price increases

By Greg Peel

WiseTech Global ((WTC)) is a global market leader in the logistics software market, with a formidable track record of growth and cashflow generation, Morgans notes.

The broker is attracted to WiseTech’s strong market position, growth prospects via ongoing adoption of its CargoWise product by global freight forwarders, and the near-term growth opportunities emerging across the company’s customs and compliance and landside offerings.

The logistics software group accounts for 40% of the IT sector in the benchmark ASX200.

WiseTech has been in the news a lot lately, for all the wrong reasons. This led indirectly to last Friday, when WiseTech announced at its AGM it had downgraded FY25 revenue and earnings guidance, citing delays in launching a new product following “distractions flowing from the recent media attention and the organisational changes” after various allegations about the conduct of founder and now former CEO Richard White.

Interim CEO Andrew Cartledge and the board, in consultation with ex-CEO White, have since reviewed the progress of its new breakthrough products, CargoWise Next, Container Transport Optimisation and ComplianceWise.

The commercial launch of the Container Transport Optimisation module, which had been scheduled for the first half of FY25, has now been pushed back to the second half. Of the other two products, CargoWise Next is on track to launch in this December quarter, while ComplianceWise went live in the September quarter.

The board has handed down findings relating to independent review of some of the media claims relating to Richard White and the company, which has found no impropriety. Some matters remain outstanding, however, and work on WiseTech’s review continues.

Citing a “media brouhaha”, Macquarie notes no evidence of misconduct has been found by the reviewing lawyers and this, coupled with the former CEO moving to a product consultant role, mitigates the risk of an overhang.

WiseTech shares nevertheless dropped -25% on the day of the announced downgrades.

All is Not Lost

While there was risk the revenue ramp-up from new products, especially CTO, could take longer than expected, the quantum of the revenue guidance downgrade was a surprise to Citi and the key discussion point with investors was whether the delay to CTO was primarily the cause of the downgrade.

WiseTech downgraded its FY25 revenue guidance to $1,200-1,300m from $1,300-1,350m previously, earnings to $600-660m from $660-700m, and earnings margin to 50-51% from 51-52%.

Citi’s analysis pointed to around $350m in CTO revenue potential in Australia and US (assuming 35% penetration). However, the broker assumed CTO would ramp up over time given it is being rolled out port-by-port (east coast of Australia, followed by west coast of US), and revenue build-up within a port is expected to take time as “liquidity”, meaning freight forwarders providing idle containers, builds up.

With CTO now shifted to the second half FY25, one of the questions Citi received from investors is whether the FY25 downgrade would result in upgrades to FY26.

While Citi has lowered its FY26 revenue forecast by -3% the broker has upgraded its FY26 Cargowise revenue growth forecast to 36% year on year from 33% previously to reflect the delayed product roll-out. Citi’s forecasts assume around $160m revenue contribution from new products in FY26, which should also benefit from Phase II of ComplianceWise.

While all brokers have downgraded their FY25 forecasts, not all have countered with FY26 upgrades, mostly pushing further out to FY27-28. Bell Potter notes the delay in the release of CTO just pushes back the expected revenue from this product by several months so all is not lost, just delayed.

That said, given the quantum of the revenue downgrade, Goldman Sachs believes the updated guidance also reflects a more conservative view of the revenue ramp-up of ComplianceWise and CargoWise Next – with the ramp of these three products driving the material acceleration in second half FY25 revenue that was implied by prior guidance.

Goldman has updated estimates to reflect the delayed product launch into the late second half, but has also moderated its product assumptions through FY25-26.

This still drives a meaningful acceleration in revenue growth into FY26, but lowers the broker’s earnings forecasts across FY25-27.

Macquarie sees the guidance cut as short-term noise within the long-term story. WiseTech has an unassailable competitive advantage, Macquarie suggests, driven by the CargoWise dataset, and CTO is a whitespace opportunity with no competitors.

Penetrating this opportunity will take time. The broker’s earnings changes reflect new product delays, but higher outer-year sales, both from new products and from existing products.

The broker also sees potential for WiseTech to extend CargoWise beyond freight forwarders to Beneficial Cargo Owners — the other 50% of global manufactured trade volumes.

Ord Minnett’s industry discussions suggest strong customer demand for the ComplianceWise and CargoWise Next modules, particularly ComplianceWise given increasing regulatory issues around international trade.

The CargoWise Next module will be included with the core CargoWise product for free, but Ord Minnett expects the features it adds to result in heavier usage of the product which will boost transaction volumes.

Earnings Down, Targets Up

Ord Minnett has cut its FY25 forecast by -6%, left FY26 unchanged and increased FY27 by 4%. The broker’s price target rises to $137.00 from $120.00, highlighting a positive view on WiseTech’s products and their strong presence in the logistics industry.

The company noted in its FY24 results presentations it had rolled out its core CargoWise product to 52 large global freight operators, including more than half of the world’s top 25 freight forwarders, the latest being Nippon Express — Japan’s largest freight forwarder.

Given how Ord Minnett sees the company’s prospects, and the potential upside on offer post Friday’s sharp sell-down, the broker also raises its recommendation on WiseTech to Accumulate from Hold.

With the stock trading on 76.6x FY26 forward PE and enterprise multiple of 46.5x, Morgans sees this as a more attractive valuation for the company, and therefore upgrades to an Add rating from Hold with a price target of $135.30, up from $114.20.

CargoWise is a high-quality platform with multiple catalysts, Macquarie believes, operating with a sustainable competitive advantage in a winner-takes-most market.

As the former CEO remains as a consultant, overhang risk is mitigated, and the new product launches expand the total addressable market with low penetration. This broker has extended its discounted cash flow model to 15 years to capture this value in cash flows.

The move results in a target increase to $152.70 from $100.00 and an upgrade to Outperform from Neutral.

Bell Potter has rolled forward its relative valuations by a year given we are approaching the end of the first half FY25, and FY26 better captures the impact from the new products.

The broker applies multiples of 95x and 55x in its PE and enterprise valuations and has reduced the weighted average cost of capital applied in its model to 7.9% from 8.2%, driven by a reduction in the market risk premium.

Bell Potter retains Buy, lifting its target to $140.00 from $123.75.

Looking at changes to the board, CEO, and AGM guidance for FY25, Morgan Stanley believes the outlook for WiseTech remains highly positive. Following industry conversations over the past three to six months with customers, competitors and experts, this broker highlights evidence the company’s software generates both higher profits and faster growth for users.

WiseTech is growing more rapidly than its main competitors. Investment in R&D and new products is expected to strengthen its competitive moat. Morgan Stanley estimates the company’s total addressable market at approximately US$20bn, up from US$10bn, and growing at a compound annual rate of 15% to reach US$40bn by 2030.

Morgan Stanley raises its target price to $160.00 from $120.00, with its Overweight rating unchanged.

Citi retains Buy, but has left its $124.50 target unchanged.

Of the seven brokers monitored daily by FNArena, all now have Buy or equivalent ratings for WiseTech Global. The consensus target price among the seven has risen to $139.79 from $118.80, on a range from $124.50 (Citi) to $160.00 (Morgan Stanley).

Goldman Sachs retains a Buy rating and with an unchanged target of $138.00.

Citi expects the key focus of the upcoming investor day likely to be on senior management depth as well as further detail on the new products, including other products that WiseTech alluded to in its downgrade announcement.

Indeed, all brokers are awaiting the investor day (December 3) with baited breath.

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