Portfolio Update – Purchase of Wisetech (ASX: WTC)

By June 2, 2021Portfolio

Across accounts, we have bought WiseTech Global (ASX: WTC), a global developer of cloud-based software solutions for the international and domestic logistics industries. Through their platforms CargoWise and BorderWise, WTC have over 17,000 logistics organisations using their software across 150 countries.

WTC has been rapidly increasing its footprint in the Asia Pacific, America’s, Europe, the Middle East and Africa. WTC’s primary platform, CargoWise, enables logistics companies to execute complex logistics transactions and manage their operations with software covering global customs, global rates, eCommerce, logistics and enterprise. From this base, they are building out complementary services in response to “pain points” in the industry, further enhancing their value proposition and level of differentiation relative to competitors.

We like WTC for the following reasons:

·         Strength of their offering; WTC software generates material operational efficiencies for logistics organisations, removing manual involvement for various complex functions while enabling real-time data visibility

·         Management continues to invest heavily in research and development, making it difficult for smaller competitors with inferior development budgets to catch up on the scope of offering

·         Longer-term margin expansion opportunity as increasing research and development spend intensity moderates as the business gains scale

·         Strong runway for sales growth driven by new customer acquisitions, further utilisation of existing customers and new functionality

·         At current market pricing, presents an opportunity to buy a very good business at what we think is a reasonable price

We have funded the purchase of WiseTech Global (ASX: WTC) through the sales of RIO Tinto (ASX: RIO).

The iron ore index price rallied to a new high of US$230/t in mid-May before retreating +20%. This was and still is at fundamentally unsustainable levels.

The timing of the normalisation of prices is uncertain. However, when it does happen, it is generally very rapid so we are reducing our exposure to the sectors now to protect investors capital.

Driving the price weakness will be a combination of a normalisation of demand in China as stimulus that has driven a 10%+ increase in steel consumption (of which iron ore is a key input) and a recovery in seaborne supply from Vale in Brazil as the supply disruptions caused by COVID are resolved.

As always, thank you for your ongoing support; it is very much appreciated. If you have any questions or would like more information, please contact your SBB Wealth Representative.


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