WiseTech shares dropped despite Blume Global acquisition; Here’s why?

Key Takeaways:

• WiseTech Global announced the acquisition of Blume Global for US$414 million.
• Blume Global is a high-growth recurring revenue business and is expected to generate revenue in the range of US$65 million to US$70 million in FY2024.
• WTC stocks slipped because of weak sector performance.

WiseTech Global Limited (ASX: WTC) announced the acquisition of Blume Global for US$414 million. However, the Company’s shares settled in the red zone, driven by the weak Information Technology index performance. On 17 February 2023, WTC shares settled at AU$56.540, down 3.548% from the previous close. Today, Information Technology was the top loser, with ~2.3% drop in the index values. It appears that the investors are selling WTC shares after the weakness in the technology sector. The Information Technology sector dropped as the market sentiments were impacted after US Economic data confirmed the case of further hikes by the Federal Reserve.

About WiseTech Global:

WiseTech Global develops and offers software solutions to the logistics execution industry worldwide. The Company’s customers include more than 18,000 logistics companies across more than 170 nations. WTC’s mission is to change the world by creating breakthrough products that allow and empower the supply chains of the world. The Company is relentless about innovation and includes products to improve its global platform. In the last 5 years, the Company continued to add products to improve product enhancements.

About the Acquisition:

As highlighted above, on 17 February 2023, WiseTech announced the acquisition of Blume Global for US$414 million. Blume Global is the provider of a leading solution facilitating intermodal rail in North America. North America is the largest domestic logistics region in the world, and Blume Global manages intermodal containers and chassis in support of 6 out of 7 Class 1 US railroads, ocean carriers, and other intermodal equipment providers, including global freight forwarders and Beneficial Cargo Owners. It is a high-growth recurring revenue business, and it is projected that Blume Global will generate revenue in the range of US$65 million to US$70 million in FY2024, representing annual growth in the range of 45% to 55%.

Through this acquisition, the Company would be able to extend its presence in landside logistics, which is one of the critical CargoWise development priority areas via the addition of rail.

The acquisition of Blume will bring new talent, a portfolio of other valuable product competencies, as well as more improvement in its product development skill set.

WiseTech Outlook:

The Company aims to be the operating system for global logistics. It aims to create breakthrough products that allow those that own & operate the supply chains of the world. In FY2023, the Company expects FY2023 revenue between AU$755 million – AU$780 million and EBITDA between AU$385 million – AU$415 million.

In the coming period, the Company will focus on the following:

• Step-out areas allied with product development priorities.
• Accelerate and scale its current capability, deep industry knowledge as well as technology understanding.
• Productivity in the current environment to support future profitability.
• Digitization in sustainability, emissions, and digital documentation.
• Top 25 Global Freight Forwarders and top 200 global logistics providers.

Historical Performance:

The Company has witnessed significant revenue growth of over 31% from FY2018 to FY2022. In the same timeframe, net income improved by ~48%.

Stock Performance:

The Company has delivered a return of 7.87%, 7.85%, and 29.52% in 1 month, 6 months, and 1-year timeframe. The Company’s performance compared to the Technology sector performance was much better. In 1 month, 6 months, and 1 year, the Technology sector delivered a return of 4.72%, -4.45%, and -12.25%, respectively. The numbers show that the Company’s performance is better placed than the peer companies from the same sector.

Bottomline:

WTC shares dropped due to weak sector performance. Currently, the stock is undervalued based on the EV/EBITDA multiple on a forward 12 months basis.

 The Company is making gradual progress toward achieving its vision. WTC’s outlook is positive and is well positioned compared to its peer companies from the same space.

Customer Notice:

Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Enva Australia Pty Ltd (AFSL 424494). The information contained in this website is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.

Kapitales Research, Level 13, Suite 1A, 465 Victoria Ave, Chatswood, NSW 2067, Australia | 1800 005 780 | info@kapitales.com