ANALYST’S NOTE

WTC reported a very strong FY18 result, which came in ahead of consensus and company guidance. Compared to previous corresponding period (pcp) revenue was up +44.1%, operating earnings (EBITDA) up +44.7%, and underlying NPAT up +26.6%

FY18 revenue of $221.6m was ahead of consensus estimate of $215m and EBITDA of $78m was ahead of estimate of $74.7m. Further, management provided a solid outlook for FY19, noting that they expect FY19 EBITDA to rise by +28–35% year-on-year to $100-105m.

FY19 revenue guidance of $315–325m is ahead of the pre-announcement consensus estimates of $287.1m. The guidance implies EBITDA margins to decline by ~300bps, with management noting that acquisitions are typically lower margin and it takes a number of years to increase the margin to WTC group level.

We have updated our earnings estimates and valuations for latest peer group multiples, which has resulted in our PT increasing to $16.60. We continue to highly rate WTC, its platform, strong management team and opportunities from increased market penetration, new product uptake and global growth opportunities. We appreciate given the growth opportunity at hand it may be difficult to apply conventional valuation methodologies.

Nonetheless, we believe we are adequately accounting for significant growth over a 10-year period and then into perpetuity in our valuation. We still struggle to meet the current share price. We maintain sell given our price target is substantially below the current price.

• FY18 headline results. Overall, a very strong result with group revenue up 44.1% to $221.6m and representing a CAGR of +41% over the last 5 years. Operating earnings (EBITDA) growth of +44.7% to $78m was largely in line with revenue growth rate, with margins stable at 35%. Group EBITDA has see +43% CAGR over the last 5 years. Both revenue and EBITDA exceeded management’s full year guidance. Underlying NPAT was up +26.6%, much as less than earnings growth, due to higher D&A, interest and tax expense.
• M&A set to continue, however a margin detraction in the short-term. Strategic bolt on acquisitions again played an important role in expanding WTC’s presence over the world in FY18. During the year, the Company made 22 acquisitions in Europe, Asia and the Americas of leading customs or freight forwarder providers. Management noted that these targeted acquisitions provide safer, faster and stronger entry into new key markets. In the short term, the acquisitions to adversely impact EBITDA margins, however management is confident to increasing these margins towards WTC group level over time.
• Outlook. Management expects FY19 revenue to be in the range of $315-325m, representing growth of +42-47% year on year, and EBITDA of $100-105m, that is growth of +28-35%. The guidance implies EBITDA margin of 31.7 – 32.3% versus FY18 margin of 35.2%.
• Our valuation. We have updated our earnings estimates post the results release and now sit slightly above management’s guidance for FY19 at the revenue and EBITDA line. We now ascribe a 50% premium to WTC’s EV/Sales valuation versus peers compared to the current share price implying a premium of approximately 110% (on our estimates). We use a DCF ($14.71) and EV/Sales ($18.55) valuations to arrive at our blended valuation of A$16.60 (rounded to the nearest ten cents).