It’s been a typical reporting season, with some results beating expectations, some falling badly short; and plenty of others managing to meet the market’s conservative projections. There have been share-price tantrums, as well as rewards for those that impressed – and also some surprising lenience for situations where the market has shown that it’s prepared to take a longer view.
There was another group of stocks, where results were surprisingly good, but the market still appears to be under-valuing them. Here are three representatives from this group: in one case, WiseTech, there are good reasons for why that might be the case…
1.WiseTech Global (WTC, $89.50)
Market capitalisation: $29.9 billion
12-month total return: –5.1%
Three-year total return: 27.4% a year
FY25 estimated yield: 0.2%, fully franked (grossed-up, 0.3%)
FY25 estimated price/earnings (P/E) ratio: 80.6 times earnings
Analysts’ consensus price target: $124.05 (Stock Doctor, 16 analysts); $131.76 (FN Arena, seven analysts)
The corporate governance-improper behaviour soap opera at WiseTech Global, the ASX’s biggest tech stock, has been airing since October, and it has stripped 40% from the company’s share market value. Even last Monday, the stock slumped 20% after four independent WiseTech board directors — including the chair — announced their resignation.
But on Wednesday, WiseTech brought out a half-year result that might be the circuit-breaker the stock needs.
WiseTech still needs to bed-down the compromise structure it has announced, under which founder and largest shareholder, Richard White – who stepped down from the chief executive officer (CEO) role in October, after allegations of inappropriate behaviour were made against him by former – now transitions to the role of WiseTech global executive chairman, with a new CEO to be appointed after a global search process.
White had returned to WiseTech, after a brief suspension, in a consulting role as “founder and founding CEO,” but the four independent directors and the chair could not countenance that. The problem was that plenty of the company’s institutional shareholders were dismayed about White not controlling the company’s direction. But as of last Wednesday, he is back, ostensibly “leading the company’s product development and growth strategy,” while it searches for a new CEO. How that person reconciles the fact of a hands-on executive chairman remains to be seen, but it seems clear that big investors want White as involved as he has ever been.
WiseTech Global makes software that powers global shipping. Its flagship product, CargoWise, is the operating system that major freight forwarders use to track shipments, manage customs paperwork, and coordinate complex global supply chains. Last week’s half-year result showed a 17% increase in revenue for the six months ended 31 December, to US$381 million, driven largely by a 21% increase in CargoWise revenue to US$331.7 million, as WiseTech landed new freight-forwarder customers.
WiseTech’s earnings before interest, tax, depreciation and amortisation (EBITDA margin rose by 5 percentage points to 50% during the half, which helped drive a 28% increase in EBITDA to US$192.3 million. Free cash flow grew by 22%, to US$124 million: that is net cash flow from operating activities, minus the capital spending the company does, and paying its bills. At the bottom line, WiseTech reported a 34% surge in underlying net profit, to US$112.1 million, enabling the company to boost its interim dividend by 31% to 6.7 US cents per share.
It was an impressive result and had analysts looking past the corporate governance issues – and the fact that a board review looking into the company’s governance and the audit report will be delivered later this month – to the actual operating future of the business. Where there is quite a bit to like. Yes, there is risk around buying WTC now, but the company is going great guns, and analysts like it. Macquarie, for example, says WiseTech is looking at a “once-in-a-generation growth opportunity for an ASX-listed business.”
- Zip Co (ZIP, $2.40)
Market capitalisation: $372 million
12-month total return: 19.2%
Three-year total return: 14.8% a year
FY25 estimated yield: no dividend expected
FY25 estimated price/earnings (P/E) ratio: 53.5 times earnings
Analysts’ consensus price target: $3.15 (Stock Doctor, one analyst); $3.32 (FN Arena, three analysts)
Buy-now, pay-later (BNPL) payments services provider Zip Co also brought out a half-year result, and more than doubled its cash earnings – that is, earnings before tax, depreciation and amortisation (EBTDA) – to a record level at $67 million. As well, total transaction value (TTV) lifted 23.9%, to $6.2 billion; total revenue was up 19.8%, to $514 million; and the cash gross profit up 30.1% to $235.5 million.
The US BNPL market is crucial to Zip’s success – it represents 70% of TTV – and there, the news was good. The US market generated 41.1% growth in revenue, to $302.9 million; and cash EBDTA surged almost 80%. In Australia and New Zealand (ANZ), revenue slipped 2.1%, to $206.3 million. The company’s operating margin increased by 5.84 percentage points to 13.0%.
Overall, Zip’s number of transactions rose by 18.4%, to 45.7 million, with the number of active customers rising by 1.5% year-on-year, to 6.3 million and the number of merchants on the platform swelling 7.6% year-on-year, to 81,900.
Zip has a huge opportunity in the US$130 billion-plus US market; the company says there are more than 100 million ‘everyday consumers’ using BNPL. But adoption in the US is still in the early stages compared to more established markets: in the US, BNPL is less than 2% of total payments, and 5% of e-commerce payments; whereas, in Australia, it accounts for 15% of e-commerce, and in Sweden, it is 21%. Of that US$130 billion-plus US market, Zip is doing US$5.1 billion of business.
The company said it expects to push that record half-yearly cash EBTDA figure of $67 million to at least $147 million for the full year.
It was a very solid performance, and ZIP, while it has been performing strongly on the market, looks poised to move even higher as its US business continues to kick goals.
- AUB Group (AUB, $31.03)
Market capitalisation: $3.6 billion
12-month total return: 3.9%
Three-year total return: 16.4% a year
FY25 estimated yield: 2.9%, fully franked (grossed-up, 4.1%)
FY25 estimated price/earnings (P/E) ratio: 18.5 times earnings
Analysts’ consensus price target: $35.64 (Stock Doctor, 11 analysts); $131.76 (FN Arena, seven analysts)
Insurance broking and underwriting group AUB Group, which operates across Australia, New Zealand and the UK, brought out a half-year result that largely beat analysts’ consensus, with revenue rising strongly across most parts of the business. Total revenue rose by 12.1%, to $712.6 million; underlying net profit (a measurement that strips out one-off items, and focuses on the underlying business operations) lifted 13%, to $79.3 million (profit grew on the back of a mixture of organic and acquisition growth); the company’s margin (at earnings before interest and tax, or EBIT level) advanced 0.7 percentage points, to 37.6%; and the interim fully franked dividend was increased by 25%, to 25 cents. The international business’ revenue was up 10.4%, to $204.2 million, and its EBIT surged 19.8%, to $39.9 million.
AUB has delivered 28% compound annual growth rate (CAGR) in premiums since 2021, and CAGR of 38% in revenue. The company reaffirmed its full-year FY25 guidance for underlying net profit in the range of $190 million–$200 million, which would represent growth at the high end of almost 17%.
This result also gave the market a lot more clarity about Tysers, a specialist London-based international insurance broker, and the sixth largest wholesale broker in the Lloyd’s of London insurance marketplace. AUB bought Tysers in 2022, and in the recent result, it took a one-off hit from restructuring charges related to Tysers, which cleared the deck: as a result, analysts see significant scope for cross-selling and for Tysers to be the growth engine for the international business that it was bought to be.
The balance sheet looks very robust, with excess cash and undrawn debt at $360 million, following a $250 million debt raising. AUB looks to be attractive value right now, with commercial insurance pricing growing, an improving macro environment, a growing UK presence and healthy organic growth prospects. Morgan Stanley is the most bullish broker on the stock, with a target price of $38.00.
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