Morningstar | WiseTech Global’s FVE Increased to AUD 6.80 Following Acquisition and Earnings Downgrade
We have incorporated narrow-moat-rated WiseTech Global’s AUD 92 million acquisition of Containerchain into our financial model. Although our short-term earnings forecasts are unchanged, we have increased our long-term forecasts and our fair value estimate by 3% to AUD 6.80 per share. However, at the current market price of AUD 18.22, we continue to believe the stock is significantly overvalued. The current market price implies a fiscal 2020 price/earnings ratio of 108 versus 38 at our fair value.Containerchain is WiseTech’s largest acquisition to date and implies a relatively high enterprise value/revenue multiple of 6.4. However, the acquisition is small relative to WiseTech’s market capitalisation, of about AUD 5.5. billion, and WiseTech trades on an even higher EV/revenue multiple of 16 or 5.4 at our fair value. Funding the acquisition is unlikely to be a problem as WiseTech had net cash of AUD 12 million at Dec. 31, 2018, about AUD 360 million in undrawn debt facilities which mature in 2022, and we forecast AUD 30 million in fiscal 2019 free cash flow.
In fiscal 2018, Containerchain generated revenue of AUD 14.4 million, or 4% of forecast fiscal 2019 group revenue, and no EBITDA, meaning the acquisition isn’t particularly material in the short term. WiseTech also appears to have bought the business from its founder and a private equity firm, who are sophisticated counterparties and don’t appear to be distressed sellers. This creates a risk WiseTech may have overpaid. Nevertheless, we’ve assumed it will create revenue and cost synergies, albeit by an immaterial amount.
In addition to the acquisition, management updated fiscal 2019 revenue guidance by 1.2% to between AUD 326 and 339 million. This increase likely reflects the contribution from Containerchain and is similar to our AUD 350 million forecast. However, EBITDA guidance was cut by 2% to AUD 100 to 105 million, which remains slightly below our unchanged AUD 108 million forecast.
WiseTech Global is engaged in providing software solutions to the logistics industry across more than 125 countries. Co. develops, sells and implements software solutions that enable logistics service providers to facilitate the movement and storage of goods and information domestically and internationally. Co.'s customers range from small and mid-sized regional or domestic enterprises to large multi-national companies.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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