The WiseTech Global Ltd share price crashes 23% after delivering its report

The WiseTech Global Ltd (ASX: WTC) share price has plunged 23% after the logistics company delivered its report for the half-year end 31 December 2017.

WiseTech describes itself as a leading developer and provider of software solutions to the logistics execution industry globally. It boasts of having more than 7,000 of the world’s logistics companies in 130 countries.

Here are some of the highlights from the report, compared to the prior corresponding period.

Total revenue increased by 31% to $93.4 million. Recurring monthly and annual software usage revenue increased by 32% to $87.5 million. The costs related to revenue went up by 39%, meaning that gross profit only grew by 30%. WiseTech’s recent acquisitions generally have lower profit margins, which affected the overall result.

WiseTech invested additional money in product design and development during the period, the total R&D expense increased by 27% to $22.8 million, which includes $3.5 million related to investments in acquired businesses.

The company also increased its sales and marketing expenditure by 51% to $11.3 million, which included $1.2 million of acquisition-related costs and $1.7 million related to the impact of the increased share price on equity.

Total operating expenses increased by 31%, slowing the operating profit growth to 26%, which equated to $22.5 million in total.

Profit before tax increased by 13%, but a 26% increase to the income tax expense saw net profit after tax (NPAT) only grow by 7% to $15.5 million. This resulted in earnings per share (EPS) increasing by 8.16%.

WiseTech management increased the dividend by 5% to $1.05.

Management were keen to point out that recurring revenue is now 94% of total revenue, up from 93%. The product design & development costs and general & administration costs as a percentage of revenue both decreased by 1%. This shows economies of scale are working for WiseTech.

The balance sheet was in decent shape with $60.2 of cash available, but total current assets decreased from $122.6 million at June 2017 to $89.3 million at 31 December 2017 and total current liabilities increased to $51.1 million from $42.4 million.


WiseTech said that it has made ‘powerful progress’ on innovation and its acquisition pipelines. Its continuing revenue growth during business expansion and transformation is a positive sign.

Management boasted of having 100% recurring revenue for its main product, CargoWise One, and the customer attrition rate was less than 1%. It believes that there are increasing tailwinds from industry dynamics and e-commerce.

The company said the benefit of full-year impact of FY17 acquisitions and the part contribution of FY18 transactions and the launch of new products will boost growth.

Foolish takeaway

I thought this was a decent report, but considering the WiseTech valuation it was fairly disappointing. Big profit growth like Altium Limited’s (ASX: ALU) and a2 Milk Company Ltd’s (ASX: A2M) justifies big multiples, but sadly WiseTech wasn’t able to deliver the same blockbuster bottom line growth in this period.

I don’t think WiseTech is a buy today, but I believe this top stock could easily beat the market over the next two years.

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of A2 Milk, Altium, and WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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