Category: Technology Stocks

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

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Technology Stocks

WiseTech declared strong FY21 results and uplift in dividends

Investment Thesis:

  • WiseTech is ahead of its nearest competitors, which clearly makes it a market leader
  • Increased globalization results in growing global trade, thereby accelerating selling of products 
  • Annual customer turnover rate is low and revenue visibility is high
  • Enhancement of WTC products evident from the amount spent on R&D 
  • WTC’s long term goal is to be the operating system for world-wide logistics 
  • After acquiring 39 companies since it got listed on stock exchange in 2016, WTC has built up substantial resources and development capabilities to drive its CargoWise technology pipeline.
  • The scalability of WiseTech business model  
  • Due to higher consolidation of the logistics software industry, geopolitical tensions are considered as tailwinds by management 

Key Risks:

  • Another earnings downgrade is announced by the company
  • Organic growth could narrow down further, which might not result in such high valuation. Although, organic growth was improved during FY19.
  • Management has observed that the revenues from recent acquisitions have declined indeed and rendered very less margin. This means that the return obtained from these acquisitions could take longer than management’s expectations
  • Threats from competition like new product/technological advancements
  • Disruption caused due to technology (data breach)
  • Currency moving adversely

Key Highlights:

  • Share price of WiseTech Global Ltd (WTC) rose by 28.5% after its announcement of FY21 results which is higher than market estimates and the Company’s own expectation. 
  • Strong uplift in dividend payments has also been declared
  • Total Revenue for FY21 is $507.5m, which is up by +18% (or +24% ex FX)
  • EBITDA of $206.7m, is up by +63% in comparison to FY20
  • FY21 NPAT is $105.8m, which was up by +101% with reference to FY20
  • Investment of $167.1m by WTC in Research and Development (up from $159.1m in FY20), which is about 33% of total revenue, ensures that WTC stay ahead of its competitors
  • Management announced a strong FY22 outlook, expecting revenue growth of 18% – 25% and EBITDA growth of 26% – 38% 

Company Profile:

WiseTech Global (WTC) which was founded in October 1994, is a leading provider of software to the logistics services industry globally. WTC develops, sells and implements software solutions that enable logistics service providers to facilitate the movement and storage of goods, domestically and internationally. WTC’s software assists their customers to better address and adapt to the complexities of the logistics industry while increasing their productivity, reducing costs and mitigating risks. WTC services over 6,000 customers across more than 115 countries with offices in Australia, New Zealand, China, Singapore, South Africa, United Kingdom and the United States. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Another Strong Quarter for Zoom with Steeper Q4 Deceleration in Guidance

However, third-quarter guidance was mixed but largely in line and implied fourth-quarter guidance shows a steeper deceleration in top line growth than anticipated as a result of increasing churn and lower customer’s additions in the online channel that focuses on smaller customers. 

Zoom has been guiding to deceleration as the year progresses, even as it has been beating expectations and raising full year expectations over the last three quarters. There is a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform. Along these lines, management will focus on expanding its platform to feature a wider array of revenue generating products as hyper growth normalizes.

Current remaining performance obligations, or cRPO, grew 58% year over year in the quarter, compared with 54% revenue growth. While this is generally a positive indicator for revenue over the next year, management was careful to point out that billings cycles are growing increasingly concentrated in the April quarter and that therefore both cRPO and deferred revenue are to decrease sequentially in the third quarter.

Company’s Future outlook

Zoom Vedio Communication’s last traded price was 347.50 USD, whereas its fair value estimate is 252.00 USD, which makes it a highly overvalued stock.  Revenue grew 54% year over year to $1.021 billion, which topped the high end of guidance of $990 million. Direct and channel business was strong, with enterprise customers doing larger deals but taking more time to evaluate the solution and being more strategic in their approach. Up sells of Zoom Phone and a pickup in Zoom Rooms helped drive larger deals. New customers accounted for 74% of revenue, which is unusually high for a software company of Zoom’s size. Zoom Phone momentum continued during the quarter, with the company reaching 2 million seats. Net dollar expansion remains strong at 130%,

Company Profile

Zoom Video Communications provides a communications platform that connects people through video, voice, chat, and content sharing. The company’s cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting. Zoom, which was founded in 2011 and is headquartered in San Jose, California, serves companies of all sizes from all industries around the world.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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oOh!Media Ltd a buy given the Company’s leverage to ad spend pick up once restrictions ease.

Investment thesis

  • Strong market share (~47% in Australia / New Zealand) in a growing advertising medium Out Of Home (OOH).
  • The share price trades below our blended valuation (DCF / PE-multiple / EV/EBITDA multiple).
  • Dividend temporarily suspended, with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.
  • Management did not provide quantitative FY22 earnings guidance but did provide “revenue for Q3 is currently pacing 38% higher than the corresponding period in 2020 and 74% of Q3 2019”. Further, management noted, “forward visibility remains uncertain given the ongoing effects of Covid-19 lockdowns and associated movement restrictions, however we expect that when the current lockdowns end there will be a strong recovery in audiences and associated revenues as has been the case previously”. 
  • The market that OML competes in is concentrated (majority share with three very well financed competitors), which poses a challenge for international players wanting to come in (need to have a network established to be an out-of-home player). 
  • Unproven CEO Cathy O’Connor became CEO of OML in January 2021, however she brings extensive experience in media and history of running profitable media companies. 
  • OML utilises audience analytics to stay ahead of the curve, with its association with Quantium (Quantium is 50% held by Woolworths and the other 50% is private equity, with its data set currently covering all the Woolworths loyalty data, NAB credit card data, real estate core logic etc to capture more than 75% of Australians spend). OML believes Quantium gives it an edge over its competitors, especially given it has exclusive rights and the contract was only recently renewed.

Key Risks

  • The following are the key challenges to the investment thesis:
  • Competitive threats leading to market share loss.
  • Disappointing growth (company and industry specific).
  • Pandemic is prolonged longer than expected.
  • Cyclicality in advertising markets 
  • Disappointing updates on contract renewals.

Highlights of key FY21 results

Relative to the pcp: (1) Revenue of $251.6m was up +23% driven by revenue recovery across key formats in Australia (Road, Retail and Street Furniture) and NZ. OML maintained the number one market position in both the Australian and New Zealand markets. (2) Gross margin of 42.5% was up 8.8 points reflecting recovery towards pre-Covid levels. (3) Underlying EBITDA of $33.3m was up +209% driven by margin expansion leveraging revenue uplift. (4) OML was able to negotiate with property partners for net rent abatements of $19m. (5) Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20. Reported Net Loss after tax of $9.3m (post AASB16) was an improvement from a -$28.0m loss in 1H20. (6) OML’s balance sheet strengthened with gearing ratio (Net Debt / Underlying EBITDA) down to 1.1x (from 1.8x) and net debt declined to $94m, down -16% relative to the pcp. (7) The Board has temporarily suspended dividends (as per OML’s announcement during its March 2020 equity raising) with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.

Company Description 

oOh!media Ltd (OML) is one of Australia’s largest operators of out of home advertising products (largest scale with footprint in all major regions in Australia & New Zealand) covering all the major advertising formats including – billboards, retail, street furniture, airports and office towers (~95% market share in office tower marketing). The Company has a workforce of 800 people, with ~150 people sales facing, ~250 people on operations (cleaning maintaining street furniture etc) and rest in shared services, technology, etc.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Dell Reports Q2 Results, but faces Supply Chain Challenges

Dell Technologies is a pre-eminent vendor of IT infrastructure products and services. Although Dell Technologies has substantial exposure to commoditized markets and carries considerable financial leverage, it expects a hybrid cloud IT to offer a growth opportunity amid Dell trimming its debt load via cash injections coming from divestitures and spinning off VMware. 

Dell Technologies’ business centers on PCs and peripherals, servers, storage, networking equipment, as well as software, services, and financial services. Its brands include Dell, Dell EMC, VMware, Secure works, and Virtustream. The company returned to the public market in late 2018 through a reverse merger of the VMware tracking stock, DVMT. The company’s largest revenue streams of commercial PCs and servers are in tough pricing environments that can rely on services and support to generate profit.

While Dell is a benefactor of heightened demand for computers and peripherals due to the pandemic, it remains hesitant about the long-term growth and competitive pricing environment of the computing market. On the other side of the business, it is expected that Dell’s hybrid-cloud portfolio can ramp up business as organizations update their infrastructure to modern solutions.

Financial Strengths

Dell is maintaining $80 fair value estimate after its second-quarter results surpassed the expectations for year-over-year revenue growth and earnings. Dell’s last traded price was 101.55 USD, whereas its fair value estimate is 80 USD, which makes it an overvalued stock. As with peers in the computer market, Dell’s rampant growth is being restrained by supply chain challenges that are expected to persist in the near term. Shares slightly dropped after Dell reported results Since returning to the public markets, the company has placed a priority on paying down its debt balance with the goal to become investment-grade. As of the end of fiscal 2021, Dell Technologies had about $48.5 billion in total debt. The Dell sale of Boomi will bring in another $4 billion, and it is expected Dell to use both transactions to pay down debt.

Bulls Say

  • As a supplier with an end-to-end IT infrastructure portfolio, Dell Technologies has significant up selling and cross-selling opportunities.
  • Through its cloud-based products, higher-margin nascent technologies, traditional hardware prowess, and VMware, the company is well-positioned to be a leader in hybrid cloud environments.
  • Dell Technologies’ healthy cash flow is focused on paying down debt and creating a more balanced long-term capital structure that can support future investments.

Company Profile

Dell Technologies, born from Dell’s 2016 acquisition of EMC, is a leading provider of servers and storage products through its ISG segment; PCs, monitors, and peripherals via its CSG division; and virtualization software through VMware. Its brands include Dell, Dell EMC, VMware (expected to be spun off toward the end of 2021), Boomi (expected to be sold by the end of 2021), Secure works, and Virtustream. The company focuses on supplementing its traditional mainstream servers and PCs with hardware and software products for hybrid-cloud environments. The Texas-based company employs around 158,000 people and sells globally.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Avita Benefits From the Incidence of Burns Normalising

Digital tablet display the stock market data

currently a skin graft sourced from elsewhere on the patient’s body. It is believed Avita will be successful based on the product’s clinical performance, ease of use and relative price point. RECELL creates Spray-on Skin within 30 minutes from a skin sample, typically less than 5% of the size required in a graft. It has been clinically demonstrated to heal the burn site as effectively as a skin graft without creating a large donor site wound.

Despite the technology in Avita’s RECELL system being in use since the Bali bombings in 2002, the product has had limited commercial success as it entered the market as an investigational device. This limited the reimbursement and take-up of the product. RECELL relaunched in the U.S. following randomized clinical trials and FDA approval in late 2018. Currently, it’s approved for treating second and third degree burns in adults, and Phase 3 pediatrics clinical trials began in first-quarter calendar 2020.

The treatment of severe burns in the U.S. is concentrated across the 136 burn centers, making commercial roll-out of RECELL straightforward. Of the approximately 14,000 adults with second- or third-degree burns treated at these burn centers each year, Avita could ramp-up to 37% share or 5,200 patients per year by fiscal 2026. The cost of RECELL compares favorably with a skin graft in this setting, as RECELL has a list price of USD 7,500 per single-use unit versus the USD 17,000 to USD 20,000 cost of a skin graft. It also has the benefits of shorter length of stay and fewer additional procedures.

Financial Strengths

Avita is in a solid financial position with no debt, and cash on the balance sheet of USD 111 million as at June 30, 2021, Having raised AUD 120 million in equity funding in November 2019, and a further USD 69 million in February 2021. It is expected that the operations of the company to be a net consumer of cash in fiscal years 2022, 2023, and 2024 as it scales up operations, and become free cash flow positive thereafter. Key operational cash requirements include the Salesforce and clinical trials and approvals for new indications. There is little capital investment required as the owned factory where it assembles the RECELL systems in the U.S. is currently running at only 10% capacity. 

Bulls Say

  • Avita’s RECELL system as a sound alternative treatment for large second- and third-degree burns treated in burn centers. It compares favorably on price and ease of use with new products and the existing standard of care being skin grafts.
  • The company requires little invested capital and is expected to generate very high returns once it ramps up its commercial roll-out.
  • RECELL has achieved an estimated 17% market share in its key addressable market since launching in 2019 and shows promising signs to expand its use for other indications.

Company Profile

Avita is a single product company. Its RECELL system is an innovative burn treatment device which creates Spray-on Skin from a small skin sample within 30 minutes, thus avoiding or reducing the need for skin grafts. It’s approved for the treatment of adult patients in the U.S. with pediatric clinical trials and expanded indications in soft-tissue reconstruction and vitiligo underway. It is currently in roll-out across the approximately 136 U.S. burn centers. Despite having product approval in Australia, Europe, Canada, and China, Avita is not actively marketing in those territories and focusing instead on the U.S. region. However, it is expected to gain approval and launch in Japan via distribution partner Cosmotec shortly. Avita is domiciled, and has its primary listing, in the U.S.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Western Digital merger with Kioxia to Become Global NAND Behemoth

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

Such a deal would be a defensive, but prudent, move by Western to reinforce its competitive position in the swiftly consolidating chip market. In the long term, it is expected the NAND market to follow the dynamics of DRAM and HDDs, and consolidate down to about three leading players for a largely commodity like product. 

Western and rival Micron were interested in a Kioxia tie up. Western would be materially better off by beating Micron to the deal, either deal would create three dominant players in NAND, and Western would avoid being on the outside looking in. Nevertheless, a potential deal wouldn’t alter no-moat or stable moat trend ratings for Western. The company maintains $70 fair value estimate for Western Digital until a deal is officially announced. 

Although they are competitors, Western and Kioxia have a long-standing joint venture for their NAND manufacturing, wherein the firms invest equally, buy chips back, and compete to sell them on the open market. The potential combination would create the largest NAND supplier in the world, barely edging out current leader Samsung. 

Company’s Future Outlook

A deal would further emphasize the strategic differences between Western Digital and HDD rival Seagate. While Seagate has doubled down on mass capacity HDDs for enterprise and cloud customers, Western has diversified into flash with its 2016 SanDisk acquisition and now the potential Kioxia deal. The deal would reportedly be funded entirely through stock. For privately held Kioxia, $20 billion or more would secure a solid return, especially after pursuing a $16 billion valuation in a suspended 2019 IPO. Seagate will able to earn more attractive returns by staying out of the high-investment NAND market. 

Company Profile

Western Digital is a leading vertically-integrated supplier of data storage solutions, spanning both hard disk drives (HDDs) and solid state drives (SSDs). In the HDD market it forms a practical duopoly with Seagate, and it is the largest global producer of NAND flash chips for SSDs in a joint venture with competitor Kioxia.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Afterpay’s Milestones over FY21 Illustrate It Has Much to Offer Square

The fair value estimate of Afterpay is at AUD 113 per share.  The company’s valuation assumes a 75% chance the acquisition will proceed to completion at AUD 126 per share, which is based off Square’s share price at the time of offer. 

Square’s deal to buy Afterpay looks like another move to push Square’s business model closer to that of PayPal and strengthen the bonds between its Cash App and seller businesses to create a more fleshed-out two-sided platform. The firm intends to amass Afterpay’s 16.2 million (and growing) highly-engaged shoppers and 98,200 merchant partners (most of which are large enterprises) as selling points to attract more merchants and customers. Incorporating Afterpay’s features into Square’s own offerings (and vice versa) also further enhances the product proposition to users.

The quality of Afterpay’s shoppers is well known. Not only is the number of shoppers growing, but spend per customer is rising–in fiscal 2021, more than 93% of underlying sales were made by repeat customers, while its top 10 customers (by sales) now spend 34 times per year, up 21% from a year ago. Quantitatively, the value Afterpay brings to merchants is reflected in rapid signup of merchants to the platform and the margins merchants can afford to (and are willing to) pay–merchant margins were unchanged from the prior year at 3.9% in fiscal 2021.

Company’s Future Outlook

The buy now, pay later, or BNPL, firm expects its acquisition by Square to close in the first quarter of 2022, with a scheme booklet due to be dispatched in September 2021. It is believed Afterpay’s strategy in moving beyond just extending credit to playing a larger role in a customer’s lifecycle (such as via Afterpay Money) should help dissuade customers from switching to an alternate finance provider and subsequently, entrench the durability of its growing network

Company Profile

Afterpay started its buy now, pay later, or BNPL, financing product in calendar 2015, listed on the ASX in May 2016 and merged with Touchcorp (who designed and built Afterpay’s platform software) in June 2017. Its BNPL platform allows consumers to make acquisitions at merchant partners by paying installments every two weeks. If consumers pay on time, they transact on Afterpay for free. Afterpay primarily generates revenue from receiving a margin from the merchant. Afterpay pays the merchant the full purchase price immediately on the sale, less this margin. The margin compensates Afterpay for accepting all non-payment risk, including credit risk and fraud by the consumer, and for encouraging consumers to purchase greater dollar values and transact more frequently.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Salesforce Margin Performance Bodes Well Long-Term; FVE up to $292

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Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer. Sales force’s fair value estimate increased to $292.

Sales Cloud represents the original sales force automation product, which streamlined process management for sales leads and opportunities, contact and account data, process tracking, approvals, and territory tracking. Service Cloud brought in customer service applications, and Marketing Cloud delivers marketing automation solutions.  Sales force Platform also offers customers a platform-as-a-service solution, complete with the App Exchange, as a way to rapidly create and distribute apps. 

Sales force is widely considered a leader in each of its served markets, which is attractive on its own, but the tight integration among the solutions and the natural fit they have with one another makes for a powerful value proposition. To that end, more than half of enterprise customers use multiple clouds. Further, customer retention has gradually improved over time and is better than 90.

Financial strength

Salesforce.com is a financially sound company. The last traded price of Salesforce was 260.85 USD while its FVE (Fair value Estimate) is 292.00 USD, which shows that Salesforce has potential to grow.

Revenue is growing rapidly, while margins are expanding. As of Jan. 31, Salesforce.com had $12.0 billion in cash and investments, offset by $2.7 billion in debt, resulting in a net cash position of $9.3 billion.  Further, Salesforce generated free cash flow margins in excess of 17% in each of the last four years, including 18% in fiscal 2021, which was negatively impacted by COVID-19. In terms of capital deployment, Salesforce makes acquisitions rather than pay a dividend or repurchase shares. 

Bull Says

  • Salesforce.com dominates the SFA space but still only controls 30% in a highly fragmented market that continues to grow double digits each year, suggesting there is still room to run.
  • The company has added legs to the overall growth story, including customer service, marketing automation, e-commerce, analytics, and artificial intelligence.
  • Salesforce.com’s margins are subscale, with a runway to more than 100 basis points of operating expansion annually for the next decade. Indeed, management has put more emphasis on expanding margins in recent quarters.

Company Profile

Salesforce.com provides enterprise cloud computing solutions, including Sales Cloud, the company’s main customer relationship management software-as-a-service product. Salesforce.com also offers Service Cloud for customer support, Marketing Cloud for digital marketing campaigns, Commerce Cloud as an e-commerce engine, the Sales force Platform, which allows enterprises to build applications, and other solutions, such as Mule Soft for data integration.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Philosophy Technical Picks Technology Stocks

Super Retail’s strong balance sheet with plenty of room to invest

Investment Thesis

  • Trading at a discount to our valuation, with attractive trading multiples and dividend yield.
  • SUL’s four core segments have strong tailwinds/fundamentals. For example, vehicle aftermarket sales continue to be strong (with an increase in secondhand vehicles sold (Supercheap); travellers seeking social distancing and thus moving away from public transportation (Supercheap); with Covid lockdown measures in force, more people would spend their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); increasing awareness of fit and healthy living (Supercheap); (rebel).
  • A strong capital position.
  • Strong brands in BCF, Macppac, Rebel, and Supercheap, as well as solid industry positions in oligopolies and a solid store network.
  • With over 8 million members, this is an appealing loyalty programme.
  • Making the switch to an omni-channel business. Previously, the business was modelled on like-to-like store numbers; however, management now thinks of business metrics in terms of club members and has been capable of growing active club membership much faster than store numbers (store numbers in the last 5 years have grown +2 percent CAGR vs active club members at +10 percent CAGR), supplying an opportunity to expand customer base and thus (most of the customers are omni channel). Management continues to push for increased online sales (Covid-19 added to this tailwind), with online sales currently accounting for 13-15 percent of total sales and expected to rise to 20-25 percent over the next five years.

Key Risk

  • Increasing competitive pressures.
  • Any supply chain issues, particularly as a result of the impact of Covid-19 on logistics, that have an impact on earnings.
  • Increasing cost pressures are eroding margins (e.g. more brand or marketing investment required due to competitive pressures).
  • A disappointing income update or failure to achieve the market’s expected growth rates could cause the stock price to re-rate significantly lower.

SUL’s Strong Balance Sheet

  • Net cash position of $242.3 million, resulting from a July 2020 equity raise and strong trading throughout the period.
  • Fixed charge cover is 3.1x (based on commonplace EBITDAL) and is anticipated to stabilise in the low to mid 2x range.
  • SUL has $600 million in undrawn committed debt facilities.
  • “While Covid-19-related trading restrictions and lockdowns continue, the Group intends to preserve a very commercially produced position,” said management. 
  • Once trading conditions have normalised, the Group intends to aim for a long-term net debt/EBITDA position (pre AASB 16) of 0 to 0.5x.”

Company Profile 

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. Macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers.  Rebel: Retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. Supercheap Auto: specialty retail business which specialises in automotive parts and accessories.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

WiseTech FVE Under Review Following Stronger Than Expected Fiscal 2021 Result and Outlook

The firm reported revenue of AUD 508 million which was in line with our AUD 510 million forecast. However, fiscal 2021 EBITDA of AUD 207 million was 22% above our AUD 170 million forecast. Underlying NPAT of 108 million was 19% above our forecast. Management’s comments indicate this margin improvement is unlikely to be lost as the pandemic subsides, as will be the case for some other ASX listed technology companies.

For fiscal 2022, the revenue expected to be between AUD 600 and 635 million as per management provided earnings guidance which is only 5% above our forecasts. However, the EBITDA guidance range of AUD 260 to 285 million is 32% above our forecast. 

Prior to the result, our forecasts assumed a 21% underlying EPS CAGR over the next decade and a terminal P/E multiple of 19. However, over the past seven years, WiseTech’s revenue has grown at a CAGR of 34% and the shares have traded on a P/E multiple of around 100. However, we can achieve a fair value equal to the current market price of AUD 46.50 if we assume an EPS CAGR of 27% over the next decade and a terminal P/E ratio of 27. We will consider the feasibility of such a scenario while the stock is under review.

The company also has a very high customer retention rate and a high and growing proportion of revenue is recurring. These attributes, combined with the very large addressable market and scalable and cash generative business model, means WiseTech has a very strong earnings growth outlook and an incredibly strong balance sheet.

The WiseTech share price initially rose by 58% on the day of the result before falling back to a 28% gain by the close of trading. We expect the share price jump reflects the market’s surprise at the strength of the result and outlook, in addition to the relatively low free float. The intraday volatility also reflects the uncertainty associated with the high-growth earnings outlook, whereby small differences in investor assumptions can have a large impact on the intrinsic value.

Company Profile

WiseTech is a leading global provider of logistics software, and 19 of the largest 20 third-party logistics companies are customers of the firm. The company has a very strong customer retention rate of over 99% per year, and is growing quickly as its global SaaS platform replaces legacy software. The company reinvests around 30% of revenue into research and development, but around 50% of this cost is capitalised, leading to poor cash conversion. Founder Richard White remains CEO and the largest shareholders.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.