What next for embattled WiseTech?

SaaS giant WiseTech Global (ASX:WTC), saw a steep draw down amidst ongoing investor concern about allegations against co-founder.

The market responded to ongoing board composition uncertainty and allegations of inappropriate behaviour, with a mass sell-off despite coinciding with a relatively positive earnings update.

WiseTech Global Ltd (WTC) ★★★★

• Fair Value Estimate: $115.00
• Share Price: $91.63 (as at 6/03/25)
• Moat Rating: Narrow
• Uncertainty Rating: High
• Price to Fair Value: 0.80 (Undervalued)

Earnings update

The February update provided a mixed outlook, highlighting delayed growth plans. Recent business disruptions were evident in the results with primary product CargoWise’s revenue growing 21% which is below WiseTech’s usual growth rates but still impressive in comparison to other software companies. Despite this, Morningstar does not anticipate this trajectory to continue as the delayed release of several new products caused a temporary hinderance to results.

Impressive margin expansion

Increased leverage on sales and marketing dropping to just 6% (formerly 8%) of revenue led to an expansion of EBITDA margins and suggests the software continues to become easier as the product sells itself. Currently, Morningstar is unaware of any other publicly listed software company that spends a smaller share of revenue in this category, whilst achieving similar growth rates.

Expanding customer base

The business also successfully won two new customers or ‘Large Global Freight Forwarders’ (“LGFFs”) which the company defines as a CargoWise customer contracted for 10 or more countries and 400 or more registered users.

These new customers are two of the top 25 largest global freight forwarders and solidifies the defensive nature of WiseTech’s revenues given its expanding blue-chip client base. Notably, WiseTech currently has 14 out of the top 25 LGFFs in its contracted customer base.

Why we’re bullish

Morningstar analyst, Roy van Keulen considers WiseTech as an exceptionally well-managed, high-quality company with a large and highly winnable market opportunity. The company’s core product suite, CargoWise provides the best-in-class software solutions for international freight-forwarding, customers who use these solutions outperforming their competition. We expect CargoWise to become the industry-default either through increased customer adoption or existing customers expanding market share.

Furthermore, the company is likely to leverage its position to move into downstream adjacencies in order of functional proximity, customers and compliance, road and rail and warehousing. We view this expansion as highly likely to succeed given WiseTech’s omnipresence amongst the world’s LGFFs.

The narrow-moated Saas player flexes its competitive advantages through switching costs and network effects. This is evidenced by its industry-leading customer retention rates of over 99% per year over the last decade, despite material price increases. High upfront capital expenditure and multi-year rollouts are required for the software implementation; therefore, customers are understandably reluctant to switch providers. Freight forwarders, who are the gatekeepers in the supply chain give selection preference to asset operators with the CargoWise platform due to increased visibility and labour cost savings.

Uncertainty with White at the helm

We assign WiseTech a High Morningstar Uncertainty Rating, primarily for industry risk and key person risk.

There is still high uncertainty in the logistics industry’s ultimate market opportunity given it is in the early stages of digitising. Although we believe the market opportunity is large and highly winnable.

The company has been exceptionally managed by its founder and former CEO Richard White, however he has been transitioned to executive chairman following allegations of inappropriate behaviour. Whilst ASIC announcing preliminary inquiries into WiseTech, it is still unclear what the specifics of the probe entail. White was instrumental in developing and executing the vision behind the operating system. Given this, we see risks to expansion beyond the company’s core freight forwarding software in the case he was to leave the company.

How do the shares look?

The appointment of founder Richard White as executive chairman reduces lingering uncertainty around chain of command, compared with the previously discussed consultant role. Richard White has been instrumental to the company’s success and will continue driving the company’s product growth and strategies.

Morningstar expects revenue grows at a compound annual growth rate of 20% over the next decade. Furthermore, EBIT margins are forecast to increase at 51% by fiscal 2034 from 27% in fiscal 2024.

Van Keulen raises his fair value estimate for the narrow-moat player by 10% to $115 per share. This reflects a 20% discount to the current price of ~$91 per share.

Get more Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar's Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.