WiseTech halts trade amid new salvo from short seller critic J Capital
WiseTech shares were halted again after its response to a short seller critic was labelled ‘weak’.
WiseTech Global’s has come under renewed attack from short seller J Capital Research, with the logistics software maker’s track record with acquisitions put under the microscope.
The latest assault from J Capital send WiseTech’s shares tumbling over 12 per cent to $26.30 on Monday, before going into another trading halt.
The technology unicorn’s shares slumped almost 13 per cent last Thursday and were subsequently put in a trading halt on the back of J Capital’s first report, which alleged WiseTech of overstating its reported profit.
The twin reports have now seen more than 20 per cent of WiseTech’s value wiped off the books.
Having categorically rejected the first report, WiseTech is now formulating a response to allegations about its poor track record off integrating the businesses it has bought across the globe.
“WiseTech’s acquisition spree looks like a frantic effort to maintain the narrative that this is a fast-growing technology business,” J Capital said in its report.
The hedge fund has cited WiseTech’s acquisition of Zsoft and Compu-clear in South Africa to highlight the weakness of WiseTech’s growth through acquisition strategy.
“We interviewed four former employees of Zsoft and two competitors to understand how the Zsoft acquisition performed, according to the interviews, three years after acquiring the company, Zsoft has lost more than 30 per cent of its customers, and only a handful of Zsoft’s 1,500 clients migrated to CargoWise One.”
“In South Africa, WiseTech had the same problem as in China: it hiked prices without providing value for the cost, and customers left in droves,” it said.
J Capital’s latest report is based around a third-party commissioned survey of 13 customers featured on WiseTech’s website customers and interviews with 18 former employees.
“Our interviews suggest that, contrary to WiseTech’s public narrative, it is harming the companies it acquires by under-investing and jacking up prices on legacy platforms to force clients to move over to CargoWise One.”
“Most acquisitions remain stand-alones two years post acquisition, as WiseTech fails to devote resources to integration.”
“We believe that, when WiseTech slows or stops acquisitions, shareholders will realise they own a motley global collection of small, poorly integrated companies with dispirited staff,” the report said.
J Capital’s latest assessment also raises questions about the overall value of WiseTech’s core platform CargoWise One, which the hedge fund says is not as popular as it’s purported to be.
“We believe WiseTech is misleading investors that the customer attrition is less than 1 per cent on its CargoWise One platform.”
“WiseTech has been offering virtually free access to the CargoWise platform, in two interviews, we learned that these price cuts are measures to counteract decline in WiseTech’s home market, Australia.”
The report adds that there is a significant churn in acquired customers who are not converted to the CargoWise One platform.
“Not only do many of these customers fail to convert, but in many cases, they look for alternative platforms,” J Capital said, citing the customer survey, which also found that 25 per cent of them are looking to switch.
The sample size of the survey is a fraction of WiseTech’s overall customer base of 12,000 and the latest allegations are in stark contrast to the analysis by Evans & Partners analyst Paul Mason, who has labelled J Capital’s initial report “complete, utter garbage” and added that WiseTech’s platform is popular with users.
According to Mr Mason, customer feedback on WiseTech’s core product CargoWise One remains consistently positive.
“The customer feedback on CargoWise One that I have experienced personally, and that has been reported to me by clients I have spoken with, is profoundly positive,” he said.
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