✅ Buy Alert - 3rd Buy, 35% FCF margin <1% attrition business growing at 20%, 10yr low valuation
Positive management change and continued top customer additions give me confidence amid uncertainties. Business remains top class for a 50% discount from my initial buys.
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I am buying more Wisetech (WTC). Best of class business (86% gross margin, ~35% free cash flow margin, growth at ~20% expected mid-term), trading at the low end of the last 10 years p/fcf valuation at ~40x.
Read my past writeups for full context: deep dive, buy alert 2, buy alert 1, FY24 update, H1 FY25 update, CEO shake-up, E2Open acquisition, Back to basics. (tracking sheet below)
And in case you missed it, WTC was featured in my November Best Buys, and a few days before buying WTC, I also bought Sea Limited (SE) for my PA at $136/share.
What’s going on with the stock?
The stock has declined 55% to AUD 60 from AUD 134, primarily due to the ‘loss of focus’, to put it mildly, by the co-founder and current executive chair, Richard White (30%+ owner of shares). He is the founder and ex-CEO for the last thirty years, the heart of the business. The sex scandal and power-grabs saga undoubtedly caused delays in key product releases, thereby slowing revenue growth.
I am a bit annoyed as it was an unforced error (more here), but as someone who wants to own the Wisetech business forever, I am a happier buyer here.
What’s going on with the underlying business?
But it’s been a year since the news broke, and I feel vindicated as I am still holding and now in a position to add more. My thesis-breaking event has always been that if a key top large freight forwarder (e.g., UPS, DHL) leaves, then something more rotten is going on, and that means I would have to reconsider my position.
Yes, growth slowed in the last 3 quarters, but instead of losing clients, WTC has continued to onboard large clients, and the last two top 25 LFF wins are going to produce 3x the wins of 2024. They are Nippon Express, a $20B revenue company and the most prominent logistics logo in Japan, which signed CargoWise due to losses from internal software failures, and LOGISTEED, a $6B revenue company with a presence in 100 countries.
What changes are being made?
Furthermore, since the event breakouts, I am satisfied with WTC’s board actions. It surveyed the top 50 institutional investors, asking them what they would like the company to ‘do’ with Richard White. Since the survey, the company has listened and acted appropriately:
Acted on succession plan and reduced key person risk by appointing Zubin Appoo as the new CEO, while keeping Richard White as executive chair, overseeing product innovation and strategic growth plans. I think this is appropriate and a balance between ensuring a smooth transition with someone with WTC’s DNA, whilst reducing the reliance on Richard White (who’s also earned his retirement at 70 now).
Strengthen board independence by appointing four independent non-executive directors with a range of skills and experience, including international logistics, global technology, business growth, and governance. They plan to announce the appointment of at least one additional independent non-executive director by 31 December 2025.
Maree Isaacs’ re-election as Executive Director and Head of License Management is deemed essential for maintaining continuity and providing a nuanced understanding during the transition to the new CargoWise commercial model. She is the co-founder and has been at Wisetech since the beginning.
Why add more now?
Long-term opportunity remains large and clear.
Global trade is more complex today than at any point in recent decades. Tariffs, embargoes, sanctions, restricted party rules, and geopolitical volatility are increasing. CargoWise is well-positioned to address these complexities through the two critical outcomes it delivers. It drives efficiency and productivity throughout the supply chain and manages the rising complexity and risk that global logistics operators cannot avoid.
Who is using Cargowise, and what value do they get from it (detailed in a separate write-up here?
48 of the 50 largest 3PLs (up from 47 since Jan 2024)
24 of the 25 largest FFs
50% of the top 50 largest FFs rolled out globally
99% retention rate, unheard of
99% of revenue is recurring
That means Wisetech has already locked in the top customers; now it’s more about rolling out to their 100s of offices and upselling new products. Sustained rapid growth is highly probable. Management estimates it to be 14%-21% from CargoWise.
~3-5% organic growth (trade volume and price increase) from customers each year, plus
~10% organic growth from CargoWise's global LFFs rollout, plus
~5-7% organic growth from upselling new products and features that WTC improves each year.
I am not accounting for inorganic growth. But e2open has fast-forwarded the development of Cargowise by 10 years! So I expect upsell opportunities in the future.
Why am I bullish on the 14-21% growth?
CargoWise can uniquely deliver value in three areas for its customers.
reduces international trade risks (taxes/compliance/sanctions)
reduces costs - improves efficiency,
improves revenue growth for customers, improves productivity, shortens time to execute orders, and improves accuracy and transparency
As a result, you can see that even cohorts from 2006 are still contributing to positive growth today.
Of the 24 of the top 25 LGFF customers, 13 are ‘contracted and in progress’, and still have just 25% of their expected users live. Most of the durability comes from rolling out to these customers incrementally.
Then, as mentioned, the newly acquired top 2 LGFFs (Nippon and Logisteed) will extend the runway as their expected users are 3x larger than FY2024 wins.
Finally, the new pricing model, ‘value pack’ transaction-based, will align more with customers and remove barriers for all segments of the market, and unlock new growth opportunities.
The degree of certainty is high, as the switching costs from CargoWise are incredibly high. It takes years to integrate. You see that CEVA (a top 25 LGFF) and Brink, signed in 2021 and 2022, respectively, are still rolling out globally. When it takes years to train staff and change workflow, it’s no wonder attrition is <1% since 2012.
You can also refer to my last write-up on Wisetech to see why large FFs, including FedEx, DHL, Maersk, and Yusen Logistics, adopt Cargowise.
A side note is that, since historical growth has been ~30%, sales and general administrative expenses have grown at 20%. Stripping out G&A, and Sales and Marketing is just 6% of revenue in 2025. This is a highly efficient company that can grow organically with minimal promotion.
Valuation vs direct peers and top companies
Pro forma EV/FCF is ~37x including e2open. No synergies assumed. What multiple direct peers are trading at today?
Aspen Tech was acquired by Emerson and delisted in March 2025, but last traded at 51x take-out price EV/FCF.
Descartes Systems and Manhattan are trading at ~30x EV/FCF, and SPS Commerce at 19x.
Wisetech remains expensive, but I can say none has the global reach, technical capability, and growth durability.
Let’s compare against the top companies. You are welcome to choose your own ‘top companies’, but I am picking a few as an example. These companies are often highly regarded by the market. Apart from CrowdStrike (which we own), the median EV/FCF multiple is 40x. All have lower growth potential than Wisetech.
So ,Wisetech at 37x EV/FCF isn’t expensive but not cheap either. But if you factor in the likelihood that growth can be 15-20% for many, many years ahead, then I think 37x is reasonable to me.
I am prepared to add further if the stock drops further.
Valuation at Jan 2024 and today.
When I published my deep dive into Wisetech in January 2024, my valuation work indicated an AUD 57/share fair value under the base case (very conservative). That didn’t account for acquisition; hence, I only expect revenue by 2028 to be AUD 2.7B, AUD 1.2B in EBIT, and ~AUD 650M in free cash flow.
FY2026 with e2Open (11 months) indicates revenue of ~$1.42B or AUD 2.2B and EBITDA of ~$565M or AUD 870M. If WTC grows topline at ~15% in FY2027, then 10% in FY2028, my old estimate would be beaten. So my original revenue target for 2028 is beatable, even though no additional acquisition is factored in (unlikely).
Summary
Wisetech is best of class; >1% attrition is unheard of (since tracking in 2012), but not surprising when you see the case study of some of the largest 3PLs and freight forwarding companies in the world on how they use Cargowise. I have no issue with Wisetech long-term here, but valuation has always been expensive…so at 37x FCF FY2026, I am inclined to add shares, sit back, and let the company steady the ship. This is considerably lower than the 70x and 60x FCF I paid the first and second time.
Portfolio as of today, after the transaction. Despite the significant negative impact of my mistake in Intellego, I am happy with the rest of the portfolio companies. I look forward to learn my lessons and adding more to Wisetech, Sea Limited (I already did a few days ago, announced in the chat), Cellebrite, SPS Commerce, and possibly Mercado Libre at current prices. See my recent November Best Buys to understand why.
Transactions (red highlight - mistake):
