WiseTech Global Ltd (ASX: WTC) has been one of the market’s best performers in recent years, with the share price up 770% from its April 2016 issue price of $3.35.
WiseTech’s vision is to “create the operating system for global logistics”. The surge in WiseTech’s share price corresponds with the execution of its vision and growth strategy outlined in its prospectus: “to expand our CargoWise One global platform through innovation, increasing usage by existing customers, growing the number of customers using the platform, stimulating network effects, and accelerating our growth with strategic acquisitions”.
The numbers
WiseTech achieved FY15 revenue, EBITDA and NPAT of $79.6 million, $21.9 million and $10.4 million, respectively.
In FY20 these metrics, in turn, were $429.4 million, $126.7 million and $160.8 million.
In the course of five financial years’ revenue, WiseTech has delivered 439% growth in revenue, 479% growth in EBITDA and a 1,446% jump in NPAT. Well and truly meeting the definition of a growth share.
The FY20 NPAT figure is skewed as it includes a “non‑taxed fair value gain of $111.0m from restructuring 22 acquisition earnout obligations and other adjustments”. WiseTech advised underlying NPAT for FY20 was $52.6 million, still a very handy 406% increase from FY15 NPAT.
Innovation
WiseTech invests a large portion of its revenue on driving product innovation, which it views as critical to future revenue growth. As at the end of FY20, WiseTech’s team had invested over 4.6 million development hours into building the CargoWise platform. That’s over 525 years!
In FY15, 38% of revenue was spent on research and development (R&D). In FY20, R&D spend was very comparable, with 37% of total revenue invested in R&D.
WiseTech reaffirmed in its 2020 annual report: “With our research and development investment we delivered over 1,100 product upgrades to our CargoWise platform in FY20, further improving the scalability, functionality, productivity and performance, and also building out more technology assets across our businesses utilising our 40 product development centres worldwide”.
Acquisitions & network effects
Acquisitions have played an integral role in WiseTech’s growth. In the 2020 annual report, WiseTech CEO and Founder Richard White said: “In recent years, we have completed over 40 acquisitions. These acquisitions have delivered significant knowledge and development resources to optimise and accelerate our technology pipeline and expand our geographic footprint”.
WiseTech completed five acquisitions in FY20, including firms based in South Korea, Switzerland and Poland.
Chairman Andrew Harrison said, “strategic acquisitions also contributed to our revenue growth, with revenue attributable to acquisitions up 29% in FY20 to $166.4m”.
Acquisitions have expanded the reach and functionality of WiseTech’s CargoWise platform, with 160 countries now licensed to use its software. Network effects are thereby supercharged as the platform becomes “even more compelling to local and global logistics providers and their customers”.
The value of the platform to its customers is reflected by its very low attrition rate (or churn) – currently under 1%. This means that over 99% of CargoWise customers stick around and, on balance, continue to increase their usage of the platform.
Founder led
Richard White founded the company in 1994 and continues to lead the company as the CEO. Although Richard recently sold some of his shareholdings, he remains WiseTech’s largest shareholder, owning about 43% of the company.
Richard has re-affirmed his commitment to WiseTech and his intention to remain a significant shareholder for the very long-term. So long as Richard is a substantial shareholder, he should remain deeply motivated to see the company grow alongside his fellow shareholders.
Wise time to buy?
Deciding whether to buy shares in this growth company today is not a simple one. WiseTech’s current market cap is $9.44 billion. Dividing by underlying FY20 NPAT of $52.6 million, the company trades on an astronomical price/earnings ratio of 179.
To buy in now you must have extraordinary faith that growth can persist at very high rates for a very long time. WiseTech says the global logistics and supply chain market is worth $13 trillion. If only a few percent is spent on software, it is easy to be excited about WiseTech’s potential for growth.
What if everything fell into place and WiseTech somehow managed to replicate its NPAT growth from the past 5 years in the future? Underling FY20 NPAT would increase 400%, leading to FY25 NPAT of $263 million.
WiseTech, therefore, trades on a theoretical FY25 P/E of just under 36. This seems very expensive against other ASX growth shares such as A2 Milk Company Ltd (ASX: A2M), which trades on a current P/E of 29.9. All things considered, I am excited by WiseTech’s growth prospects, just not the current share price.
