Richard White’s WiseTech defies the short-sellers, shares soar on core business growth

WiseTech CEO Richard White. Picture: Jonathan Ng

For shares in a top twenty company to lift 12.8 per cent on results day is news.

WiseTech is now an $18bn problem solving business with software that helps customers deal with the extraordinary complexity of supply chains.

Earnings came in at the top of guidance with an 80 per cent increase in net profit of $194.6m.

WiseTech founder and CEO Richard White — whose own shareholding rose roughly $900m on Wednesday — credits the team driving the business further and faster and extracting synergies from the many acquisitions that have been the company’s modus operandi for growth.

“All those acquisitions performing really well creating value for us, market share, getting us into new countries, new markets, helping our customers run their businesses better. That acquisition strategy has really be very powerful,” he says.

Three years ago WiseTech was bated by short sellers accusing White of using takeovers to hide real growth.

“It’s very hard to knock these results. It’s clear from the growth that this is nothing to do with acquisitions,” says White. “This is organic, there was no acquisition elevation in this. This is a company growing its business, doing very well, the cash is an obvious sign we are going well and it gives us huge firepower to do more.”

Only 3 per cent of revenue growth came from overall market growth but what impresses is the operating leverage delivering cash flow.

And investment in R&D is running at 29 per cent of revenue, ace tell about the company’s SaaS peers.

Revenue from the core engine of the business CargoWise rose 37 per cent (excluding FX) to $447.9m. EBITDA as a percentage of revenue grew by 9 per cent to 50 per cent this year producing $237m of free cash flow, up 71 per cent.

At the same time, WiseTech has completed an efficiency and synergy program that brings an annualised $50m benefit.

Underpinning the revenue growth are 43 large global freight forwarder customer rollouts including five new ones, among them FedEx and UPS. 10 of the top global freight forwarders are customers of the CargoWise platform.

And five of the large customers were smaller customers that have grown. “We are able to empower the customer to grow their business from a geographic basis and grow revenue,” says White.

White paints a captivating picture of the global logistics trade that plays to WiseTech’s business model. Merchandise trade growth is slowing from almost 10 per cent in 2021 to 3 per cent this year but supply chain issues create a backlog in demand.

Add to that a continuous demand for digital to raise efficiency, deal with hybrid work, moving to the cloud and for sustainability.

WiseTech talks a strong growth outlook, guiding 2023 revenue growth of 20 to 23 per cent and underlying earnings growth between 21 and 30 per cent or $385m to $415m.

The swelling free cashflow begets new acquisitions.

White says the six priorities for development are the next big set of problems to go to and are step-outs from the core business: landside logistics, warehousing, the beneficial cargo owners and how they operate the systems, customer digital documentation and international e-commerce.

The company recently announced three tuck-in acquisitions including landside logistics business Bolero.

Inflation the big story for Seven

Annual results for the Ryan Stokes led Seven Group on Wednesday should please the CEO. They fall into line with the Stokes message: the right portfolio of assets, coupled with sharp discipline on price and cost management, pays dividends.

That discipline is about to be applied to Stoke’s most recent acquisition, building materials business Boral, with the arrival of new CEO Vik Bansal before year end. Stokes would be counting the days.

Underlying growth across Westrac, Coates, Seven West Media and the energy business all contributed to a 14.4 per cent rise in underlying net earnings of $577m, reflecting growth in mining, media and energy sectors.

Group CFO Richard Richards says the performance of WesTrac and Coates enabled the group to borrow $4bn to take control of 70 per cent of Boral last year, take the business out of the US, deliver a capital return to shareholders and reduce debt by $2.1bn.

The economy has played well into the hands of the Group’s two great horsepower businesses, Westrac and Coates, providing heavy equipment to the mining sector. Together they deliver over half the group’s earnings. And management operational discipline has long been entrenched here.

Rising inflation is the big story. Ryan Stokes says customers at Westrac are amenable to price increases, driven by import costs for suppliers, and he says Coates has been able to push prices based on its services in a busy market.

“We are seeing that more and more. A big focus for us at Boral is to drive that pricing discipline, a similar discipline to what we have instilled within Coates,” he says.

At the February half-year results Stokes called the end of an era of cost-led profit growth. The new task for business across the economy is to make a return on capital above a benchmark level to allow reinvestment.

Boral’s results on Tuesday revealed how construction problems, weather and energy cost inputs forced the company to abandon its target $200m efficiency drive, with a fall in earnings before interest and tax (EBIT) of 32 per cent to $107m. On August 1 Boral announced across the board price rises, the highest in five years.

Boral has a clear opportunity, says Stokes, because despite everything it has been able to grow revenue through the year.

“The pricing element is my view is more a dynamic on disciplined execution than on market acceptance,” he says. “We have a market which is busy and the sector has not been effective at pushing prices for a while.

“Concrete is a really valuable building and construction material and there is opportunity to get better realisation for that as well as some of the new superior low carbon concrete.”

Stokes waits for Vik Bansal to extract himself from steel business Infrabuild, where his track record in driving efficiency builds on a similar record running Cleanaway.

“He has a big task ahead of him but understanding his approach to it and what I see is a very straightforward journey for someone who has that strong operating discipline, in our view the business will embrace that,” says Stokes.

Seven Group shares are up almost 2 per cent, in another example of the market honing in on guidance. Management expects 2023 EBIT to be in the high single digit to low double digit which is seen as conservative by the market including analysts Credit Suisse and UBS.