WiseTech Global Limited

Decent Performance in 1HFY19: WiseTech Global Limited (ASX: WTC) is a mid-cap software services company with the market capitilisation of ~$6.91 Bn as of 14 May 2019. It is well-known for its tech-innovation in the logistics segment. Its CargoWise One platform is a deeply integrated global software solutions that enables its customers to execute highly complex logistics transactions and manage their operations on one database across multiple users, functions, offices, countries and languages. Currently, its technology is used by around 12,000 logistics services organisations across 130 countries. Recently, one of its substantial holders, The Capital Group Companies, Inc has raised its voting power in the company from an erstwhile 5.5285% to current 6.6056% as on 7 May 2019.

Recently, the company presented its business prospects at the Macquarie Australia Conference and highlighted about the overview of its business and strategies. As per the presentation,the company highlighted that it is well progressed in delivering the Operating System for logistics. The annual revenues for the global logistics industry stand at around $14 trillion, and there has been spending of around ~$1 trillion on technologies for enhancing the performance.Despite such investments, high error rates still pertain in the industry. By looking at the needs of all the logistics providers, Wisetech offers wide solutions in problems such as Real-time visibility; Control over margins; Reduced risk, cross-border execution; Faster multi-modal movement; More efficient use of resources; and Error Reduction. In the current scenario, 38 of the top 50 global third-party logistics providers use WTC’s solutions across ~130 countries worldwide, important names are DHL, DHV, XPOLogistics, Schneider, Toll, FedEx, Imperial Logistics International, Americold, etc. Around 7 of the top 25 global freight forwarders use CargoWise One in global forwarding rollout exclusively, including the world’s largest “DHL Global Forwarding” 

Financial Performance: It reported a 68% increase in its revenue to $156.7 Mn in H1FY19 as compared to the previous corresponding period. Topline grew by 48% CAGR over 4 years in between H1FY15 to H1FY19. Its EBITDA increased by 52% to $48.5 Mn in H1FY19 as compared to the previous corresponding period.


Key Financial Metrics (Source: Company Reports)

What To Expect: The company expects that FY19 revenue will be 47%-53% up at $326 Mn-$339 Mn as compared to FY18. Its EBITDA is expected to grow by 28%-35% to $100 Mn-$105 Mn as compared to FY18. The above-mentioned guidance includes:
 

• Retention of existing customers with organic usage growth consistent with historical levels;
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• New customer growth consistent with historical levels; New product and feature launches;
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• Contractual increases in revenue from existing customers, reflecting the end of temporary pricing arrangements;
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• Acquisitions post 30 June 2018: Ulukom, SaaS Transportation, Fenix, Pierbridge, Multi Consult, Trinium, Taric, DataFreight, SmartFreight, CargoIT, Systema and Containerchain;
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• Sales and marketing as % of revenue to increase over time to more historical levels, 10% – 12%;
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• And, General and administration, including M&A, excluding acquired G&A, as a % of revenue to be more efficient over time, below 20%.
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 Forex Rates Guidance for H2FY19 (Source: Company Reports)

Stock Recommendation: The stock recently made its 52 weeks fresh high at $23.802, and till now has corrected of around 10.5%. It is expected to further correct before making any fresh upside rally. Its EBITDA Margin for H1FY19 stands at 28.5% better than the industry median of 27.5%. Hence, considering the aforesaid facts and current trading level, we suggest investor to watch the stock at the current market price of $21.300 per share (down 2.204% on May 14, 2019).
 

TechnologyOne Limited

Trading At High Levels: TechnologyOne Limited (ASX: TNE) has an engagement in the development, marketing, sales, implementation, and support of fully integrated enterprise business software solutions.

The company recently announced an appointment of Mr. Clifford Rosenberg as an independent, Non-Executive Director. The move forms the part of the company’s plan to increase the size of its board, with the addition of four new independent directors by 2019. Mr. Rosenberg stands as the third addition in the new directors’ list. He has extensive experience in leading innovation and change through executive and directorial roles in ASX-listed companies in the rapidly changing fields of technology and online media. His directorships include Afterpay Touch Group (ASX: APT), Nearmap (ASX: NEA), and A2B Australia Limited (ASX: A2B). He was also a Non-Executive Director with Dimmi (online reservations company bought by Tripadvisor.com in May 2015).

Financial Performance for FY18:Its total annual recurring revenue increased by 22% to $169 Mn. Over the last 7 years (2012-2018) compound growth in NPAT has been 14% per annum, with $23.6 Mn in 2012 to $51.0 Mn in 2018. Its annual licence fees continue to grow strongly by the compound growth rate of 14% from $43.1 Mn in 2009 to $139.6 Mn in 2018.


FY18 P&L Statement (Source: Company Reports)

What To Expect: The company expects average recurring revenue (ARR) to grow at approximately 20% per annum till FY22, with ARR at the start of FY19 at $177 Mn (75% of Total Revenue); and ARR at the start of FY22 at $311 Mn (~85% of Total Revenue). TNE expects to report a compound annual growth rate of Annual Recurring SaaS Platform Fees by69% p.a. from a loss of $2 Mn in FY2014 to $143 Mn in FY22.FY19 Annual Recurring SaaS Platform Fees is expected to increase by 65% to $62.8 Mn in FY19 as compared to FY18. The company expects H1:H2 skew to reduce to 45%:55% over the next 5 years.

Stock Recommendation: It is currently trading towards the 52 weeks high level, and therefore the possibility of correction might trigger in the near term. Its Gross margin and net margin for FY18 stands at 86.7% and 17.1% better than the industry median of 84.2% and 14.7%, respectively, which implies decent fundamental of the company than its peer group.Its ROE for FY18 stands at 30.3% better than the industry median of 15.5%, showing a better return for its equity holders than its peer group.

On the valuation front, its EV/Sales for TTM stands at 8.7x which is higher than the industry median of 4.4x, indicating an overvalued position at the current juncture.Given the backdrop of mix scenario, we have a wait and watch stance on the stock at the current market price of $8.830 per share (up 0.455% on May 14, 2019).
 

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