Treasure Chest: WiseTech Global

Array
(
    [0] => Array
        (
            [0] => ((WTC))
        )

    [1] => Array
        (
            [0] => WTC
        )

)

This story features WISETECH GLOBAL LIMITED.
For more info SHARE ANALYSIS: WTC
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is WiseTech Global.

By Danielle Ecuyer

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

Macquarie

The subject:

Macquarie does not 100% dismiss the potential threat of future AI development to present business models, but at the same time posits, when it comes to WiseTech Global ((WTC)) specifically, AI disruption fears have gone too far and been conflagrated with operational changes alongside an indiscriminate global SaaS sell off.

More info:

WiseTech Global’s share price has been swept up in the indiscriminate global software-as-a-service sell-off, referred to as SaaSpocalypse by Ord Minnett, driven in large part by AI disruption concerns as major players like Anthropic and Google Gemini develop agentic plug-ins that could potentially challenge global software operators, effectively lowering barriers to entry and heightening competitive pressures.

The speed and severity of the global SaaS sell-off went full galactic last week, with Ord Minnett noting the broader Australian software sector has de-rated by around -30% since the launch of agentic AI tools.

As the editor of FNArena pointed out recently, this all has a whiff of the GLP-1 dramas back in 2023 around any product perceived to be correlated to weight loss, which led to heavy selling in ResMed shares at the time.

There are shades of nuance and reality that often emerge and develop in ways that do not reflect initial market fears.

Analysts have been stepping back from the hype to break down the real versus perceived risks.

The initial consideration is which characteristics enable certain software companies to establish a more defensible business model than others.

Not all software companies were created equal

Macquarie has nominated WiseTech Global as the most “defensible”  business in ASX tech, while also being among the most active in integrating AI, plus benefiting from the technology through cost-outs and direct sales.

WiseTech’s CargoWise (CW) product has deep enterprise roots, for lack of a better analogy, which Macquarie depicts as outputs having liability attached to them, requiring 100% accuracy.

Freight forwarders, the customers, need logistics management that ensures freight arrives where it is intended, intact and on time, which the analyst refers to as “deterministic reasoning”.

The software must produce the same correct answer every time, using strict rules, with no ambiguity, because the output is operationally and legally binding.

In contrast, LLMs are probabilistic and cannot achieve the same guaranteed accuracy, particularly around compliance requirements. An LLM can send an email to a customer, but it cannot fill out customs forms, limiting its application to some of the more basic CargoWise workflows.

Jarden describes foundational models such as Anthropic, Google and xAI as excelling at pattern recognition, but not suited to regulatory nuance and highly complex contexts.

Regulated industries, or those with counterparty risk, offer higher barriers to entry.

Macquarie expands on CargoWise’s moat, pointing to the extent of its vertical operating system, which encompasses proprietary data backed by significant research and development investment.

The inference is that AI can greatly assist with coding, but does not address the ancillary and adjacent complexities of major enterprise workflows, as exemplified by CargoWise.

As Jarden notes, easy-to-replicate software businesses could become competitively unviable with AI offering a cheaper alternative, but not deeply vertical models with accompanying compliance, regulatory and similar barriers to entry.

Ord Minnett refers to the distinction between “cheap to build” and “hard to replace”.

One informed investor on X tweeted, “DSV, to leave CargoWise, would need a board resolution, probably five years of change management, and a four-year implementation plan… eight and low-nine figures”.

Jarden refers to such cases as high switching costs, which at the very least buy time for the incumbent to develop new capabilities.

Ord Minnett’s defensiveness model reflects WiseTech achieves a high score across multiple features, including verticalisation, regulatory exposure, mission-critical usage, deep integration, trust and network effects.

In contrast, the stock’s valuation has been de-rated in line with lower-moat “at risk” software.

Another comparison is that more robust software businesses resemble legacy systems like mainframes, which may be technically outdated but, because they are embedded and risky to replace, function as critical infrastructure rather than discretionary SaaS.

Macquarie also emphasises WiseTech’s share price implies 76% of the current total addressable market is being destroyed by AI, calling it “extreme pessimism” now priced in.

The share price is discounting multiple outcomes 

Interestingly, the SaaS sell-off has coincided for WiseTech with the introduction of its new service offering, CargoWise Value Packs, as the company transitions customers from the old-style pricing referred to as Software Transaction Licence, which involved seat-based licences and individually negotiated discounts and bespoke terms.

The transition to CVP is being complicated by the migration of existing customers to the new model, which shifts CargoWise from a licensed software tool to a continuously expanding operating platform. As detailed by Macquarie, channel checks show WiseTech is discounting to incentivise adoption.

CVP is a value-share revenue model rather than seat-priced, can integrate new features including AI tools as part of the package, reduces reliance on seat-based models, and re-prices the current customer base.

“The CargoWise Value Packs offer our customers a major enhancement in value and capability… with simplified billing via a single CargoWise Value Pack”, explained WiseTech co-founder and CIO Richard White.

Macquarie’s channel checks confirm the use of Transitional Pricing Protection to smooth pricing for customers as they transition. The aim is to reduce customer churn risk and stabilise the customer base while CVP is rolled out, but the discounting means the full pricing uplift will not be realised immediately.

The broker highlights from FY27 onwards, the success of CVP becomes more dependent on freight volumes and customer activity.

CTO (CargoWise Transport and Logistics) is also being rolled out and remains a key earnings driver, aimed at extending WiseTech beyond freight forwarders into the broader supply chain.

Macquarie has lowered EPS estimates to reflect CVP transition pricing by -7% for FY26 and FY27 and lowered its target to $94 from $108.50, while retaining an Outperform rating.

At current levels, the share price is fully discounting execution risks, which are viewed as “commensurate” with the company’s ability to deliver the significant market opportunity, while potential AI upside is not reflected.

Jarden has an Overweight rating and a $74 target price, while Ord Minnett views WiseTech as highly defensible from AI disruption.

FNArena’s daily-monitored brokers have a consensus target price of $111.95 with seven Buy-equivalent ratings.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms