In Brief: Coventry Group, Wisr & WiseTech

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This story features COVENTRY GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: CYG

This week's In Brief shines a light on three companies with turnaround potential or value to be unlocked.

• Hidden value in Coventry Group’s divisional breakup potential
• Wisr’s transition into its ‘scale and profitability’ era
• WiseTech Global in need to rebuild market trust amid investigations and governance strain

By Danielle Ecuyer

This week’s quote comes from Morgan Stanley’s Sanjit Singh, infrastructure software and analytics.

“Contrary to current market concerns that AI will replace human developers, we believe it will enhance productivity and lead to more hiring,”

(…….)

“As enterprises build more complex applications and tackle long-standing technology debt, the demand for skilled developers will grow.”

Coventry’s break up potential

Taylor Collison initiated coverage of Coventry Group ((CYG)), proposing the company could be valued at over 1.7 times the current equity valuation if its two divisions were separated and sold.

The group operates two divisions: Fluid Systems, which is a leader in industrial products and services across the hydraulic, pneumatic, and refueling markets.

The second is Trade, which concentrates on the distribution of fasteners in Australia and New Zealand.

The two businesses have minimal strategic overlap and based on the last financial year results, the analyst assesses the potential value pre any financial impacts from the introduction of an ERP software system.

Coventry’s financial reporting ends on June 30, but the report zooms in on FY24, as that was the last financial year unaffected by ERP implementation issues.

In FY24, corporate overheads were -$14.8m, which is significantly above peers at a similar scale, with management pointing to cost savings of $10m. The analyst believes up to $5m of these savings are in head office and has divided the remaining $10m across the two divisions.

Based on a comparable group, Questas, which was recently acquired by private equity at 9.4 times earnings (EBITDA), if a valuation multiple of 8 times was applied to Coventry’s Fluid Systems FY24 earnings (EBITDA) of $19m, and allowing for -$5m in head office costs and -$1.3m for an onerous contract, this gives an implied valuation of around $102m.

Applying a 7 times valuation to Trade Distribution’s FY24 earnings (EBITDA) of $16.7m and taking off head office costs of -$5m, that enterprise valuation is estimated at around $82m.

While the business has performed poorly following the introduction of an ERP system and challenging conditions across A&NZ, the implementation has generated around -$15m in costs over the last two and a half years. The installation and rollout should be completed in the next six months.

Management has guided to $20m in group earnings (EBITDA) in FY26, which represents a return to FY24 profits, and the 1Q26 update reinforces the analyst’s view this can be achieved.

The company also announced a non-renounceable entitlement offer to raise $20m in September, with some $11.5m in applications received.

The stock is rated Outperform with a valuation of $1.02. Coventry’s current market cap is around $80m.

Wisr is growing older and wiser

Wisr’s ((WSR)) first-quarter update for FY26 showed loan originations up 90% to $146.8m on the previous year and up 5% on the June quarter, which are slightly above what MST Financial had anticipated.

Management indicated FY26 and beyond as Wisr’s period of ‘scale and profitability’, with the first-quarter results indicative of the transition underway from the ‘return to growth era’.

Positively, the loan credit quality is improving, and compression on net interest margins has risen, resulting in a decline of -38 points to 5.26% on the previous year but is flagged to be temporary. Management has indicated 2Q and 3Q margins will start to normalise.

The MST analyst views the improving technical capabilities and expanding product offering, including the new secured lending product, will assist in the development of a platform that can enter the ‘scale and profitability era’.

AI has also been applied, and 82% of loans are approved using AI functionality for the automated loan verification steps.

The analyst views the investment in automation and its new arrears management platform as underwriting better credit outcomes. Net losses fell by -42bps on the prior year to 1.63%, and 90-plus arrears declined by -26bps to 1.14% on the previous year and quarter.

Management has reiterated FY26 loan origination guidance of 40%-plus growth, revenue growth of 15%-plus, and a cost-to-income ratio improvement to under 29%.

Wisr should experience structural tailwinds from growth in personal and vehicle lending, with greater depth in the asset-backed security market. MST also notes possible rate relief would provide further support.

The stock’s valuation is unchanged at 13c.

WiseTech’s problems for shareholders just keep coming

Post the ASIC and Federal Police raid of WiseTech Global’s ((WTC)) head office, Jarden posits there are significant “risks to the upside and downside”.

The analyst nevertheless sees the business as offering robust growth, with high return on invested capital.

Downside risks point to the current ASIC and AFP investigation, which has the potential to distract management from general business operations, which could result in pressure on FY26 earnings guidance.

Not unlike November 2024, when management downgraded earnings due to media attention and operational changes, there is a similar risk this year.

From a consensus viewpoint, Jarden highlights the estimates for FY26 look conservative, with CargoWise revenues estimated at 16%-plus, which sits below the company’s guidance range, with a consensus Buy rating attached and much of the forecasts anchored against historical revenue growth.

The ASIC and Federal Police investigation could distract from what is currently factored in as the growth in CargoWise revenue to 2H26.

With much of the consensus revenue estimates derived from historical precedent and going out to FY32, a downgrade could have a material knock-on impact on the stock’s growth outlook and valuation.

The latest news has adversely impacted WiseTech’s share price and heightened Jarden’s position that the company needs to take “meaningful steps” to rebuild trust following the plethora of downgrades, governance issues, and controversies.

Such a framework might include meaningful operating targets and indicators to bridge between the results and performance in FY25 through to FY26 guidance expectations.

Offering meaningful key performance indicators, isolating revenue drivers which can be established independently rather than offering an outlook against historical revenue growth; communicating concisely and directly with the market in a timely fashion, and outlining a clear succession plan for Founder Richard White.

Jarden has upgraded the stock to Neutral from Underweight with a lower target price of $73 from $82, having previously downgraded the stock in September to Underweight from Neutral due to the company reporting softer than expected earnings momentum in FY25.

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