Australia | Oct 10 2024
New research highlights WiseTech Global's software will be in demand to help supply chains recover and meet new e-commerce requirements.
-WiseTech Global's upside from disrupted supply chains
-Rising e-commerce also requires cheaper, agile solutions
-Benefits of customer consolidation and new product releases
-Brokers' views on FY24 results and the outlook
By Mark Woodruff
Over several years, disruptions to supply chains have resulted in organisations increasing inventories and seeking suppliers closer to home, reversing years of just-in-time optimisation and globalisation.
The cumulative impact of covid, natural disasters, trade disputes, and ongoing geopolitical conflict has exposed this supply chain fragility, explains RBC Capital Markets.
In addition, the 'Amazon effect' is raising consumer expectations for visibility and shorter delivery times, and the rise of e-commerce in general has disrupted how business-to-consumer (B2C) companies organise their supply chains by making real-time visibility an essential feature.
Software is a key part of the solution to help supply chains recover, suggests the broker, and will increase supply chain agility, while also reducing costs.
Already, global supply chains are undergoing end-to-end digital transformations.
Across RBC Capital Markets' global coverage, WiseTech Global ((WTC)) is identified as one company set to benefit from this increased demand for software over the next several years.
Providing cloud-based logistics software, primarily to freight forwarders and third-party logistics (3PL) providers, WiseTech counts 11 of the top 25 global freight forwarders as CargoWise software customers and is the clear global leader in the Transport Management System (TMS) market.
CargoWise makes up the bulk of WiseTech's revenues.
All up, 87% of total revenue in the first half of FY24 was organic, points out RBC, with 97% of this organic revenue recurring in nature.
RBC's deep dive into industry dynamics suggests adjacencies are also ripe for disruption, noting management is aiming to expand the customer proposition and addressable market beyond WiseTech's core competency of international freight forwarding into warehousing, landside logistics, customs, and compliance.
Overall, the analysts are positive on the company's market position, growth runway and class leading software platform.
Positives include a technological product advantage with over 20 years of large R&D spend and expansion into new adjacencies. The analysts also point to pricing power, along with multiple global reference customers with low levels of churn.
Industry background and main players
The fastest growing market in the enterprise software segment, according to leading research company Gartner, is the US$29bn supply chain management (SCM) sector, which is growing at a 16% compound annual growth rate (CAGR).
Around 30% of this growth is expected to come from end-to-end supply chain and orchestration platforms.
Large ERP players SAP and Oracle typically bundle SCM into large ERP contracts, explains RBC, which provides a significant sales advantage over third party providers.
On the flipside, SCM is a relatively small portion of total revenue for these incumbents, and consequently is less of a focus in terms of innovation compared to pure-play vendors like WiseTech, highlights the broker.
WiseTech primarily competes against in-house platforms, which often lack functionality such as customs clearance, warehousing, and international eCommerce, which CargoWise can provide.
Rising demand exists for next-generation SCM software providers that offer more flexible, interoperable solutions. This is because many large companies, (especially those that grow through acquisitions) often have multiple ERP systems from different vendors, which require manual workarounds.
Further, 3PLs are increasingly demanding platforms that can support such features as real-time tracking, automation and advanced data analytics.
Growing via customer consolidation
In mid-September, the number three global freight forwarder, Denmark-based DSV (a CargoWise customer) agreed to acquire the number four player DB Schenker located in Germany, highlighting how leverage can play to WiseTech's advantage.
DSV's air and freight volumes will rise with the absorption of DBS, which is not a WiseTech customer.
This outcome partly demonstrates Morgan Stanley's investment thesis for WiseTech, which also relies upon the ability of key customers to grow their businesses faster than the industry average due to higher organic growth from greater efficiencies, which enables bids for new customers and contracts.
Upside from new products
Management plans to release CargoWise Next, Container Transport Optimisation, and ComplianceWise in the first half of FY25 (current half).
Jarden recently stated new product development is perhaps the most under-appreciated lever for growth, noting key drivers also include new customer growth and higher penetration of existing customers.
Along with global roll-outs for the likes of DB Schenker, Citi recently highlighted WiseTech's near-term growth is underpinned by these new products/enhancements, and suggested management's earnings margin guidance looks conservative.
Goldman Sachs believes Phase 1 of ComplianceWise will be a more meaningful near-term revenue contributor given less barriers to adoption.
On the other hand, this broker views Container Transport Optimisation as the most exciting product launch, though sees some challenges in terms of adoption cadence and ultimate success. This product is considered a significant medium-term opportunity as it helps resolve a well-entrenched industry problem of container inefficiency.
The product will be rolled-out first in Australia, and then the West Coast of the US, the timing of which implies to Jarden further upside from other geographies in FY26.
WiseTech will share in an (unspecified) percentage of the hundreds of dollars saved per global container movement, highlight the analysts at Goldman.
FY24 results
Back on August 21, WiseTech reported FY24 revenue growth of 28% compared to FY23, with 33% growth for CargoWise.
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