Two solid results from growth stocks yesterday – Wisetech and A2Milk – drew very different reactions from investors.
Shares in Wisetech, the logistics software group with global ambitions soared by more than 37% at one stage yesterday on an upbeat 2019-20 results chat which included the promise of no more debt or new capital raisings.
WiseTech, which provides software services for the multi-trillion-dollar global trade logistics industry, warned in February as the pandemic gathered force that the virus’s impact on manufacturing would delay logistics activity. That saw a savage sell-off in the value of the shares.
But since then they have steadied (at much lower levels) and kicked sharply higher yesterday in the wake of the full-year results and commentary.
That saw shares in the company jump more than 37% to a six-month high of $28.46 before settling up 34% at $27.87.
That was after the results for the year to June topped expectations with a 23% lift in revenue to $429.4 million and a 17% jump in earnings before interest tax depreciation and amortisation (EBITDA) to $126.7 million.
Underlying net profit, which excludes more than $111 million worth of gains from the restructure of earnouts from past acquisitions, was flat at $52.6 million.
WiseTech declared a fully franked dividend of 1.6c a share for a total for the year of 3.33 cents a share, down from 3.45 cents a share for 2018-19.
The surge in the share price came despite the company warning its revenue growth could drop into the single digits this year as COVID-19 hits global trade.
Wisetech believes that to offset the continuing impact of COVID-19 and social distancing in offices, more companies will digitise their operations and look to use its logistics software and services.
“COVID-19 market disruptions have provided a long-term tailwind for growing our market share as the need for digitalisation across the global logistics execution market accelerates and significantly increases the value and demand for CargoWise,” WiseTech chief Richard White, said in the earnings release.
Looking to the 2020-21 financial year WiseTech said that based on current market conditions, it anticipates revenue growth in the range of 9% to 19% which translates to revenue in the range of $470 million to $510 million.
It forecast earnings before interest, tax depreciation and amortisation (EBITDA) growth of 22% to 42%, which would be in the range of $155 million to $180 million.
And the company says no new debt or capital is planned.
“Cash as at 30 June 2020 was $223.7 million (with no outstanding debt excluding lease liabilities) which, coupled with an established undrawn debt facility of $190.0 million and a further $200.0 million accordion facility in place, provides significant financial headroom and flexibility,” directors said..
“The business is highly cash generative and the Company does not intend to raise additional capital or debt.”
But for the a2 Milk, a bit of a thumbs down as the shares fell more than 6% in the wake of the release of the 2019-20 results.
Perhaps the fall was based on fears the company is exposed to an increasingly capricious Chinese government that has taken action against Australian exports of barley, coal, wine, and beef.
Now there’s a fear, it seems, that a2 is more exposed than ever, though much of its milk is sourced from New Zealand.
Much of the 33% jump in revenue came from an almost doubling in infant nutrition sales in China across a bigger retail distribution footprint.
The infant formula, nutrition, and milk business, which is listed on both the New Zealand and Australian markets, reported revenue of $NZ1.73 billion ($1.57 billion), just shy of the $NZ1.75 billion analysts’ consensus figure.
The company recorded full-year EBITDA (earnings before interest, tax, depreciation and amortisation) of $NZ549.7 million, up 32.9% on the previous year.
Underlying net profit came in at $NZ385.8 million, up a solid 34.1% from 2018-19.
A2 said it had recorded strong growth in its Chinese label infant formula products sold in China, with sales more than doubling to $NZ337.7 million. This was helped by a much wider distribution network, with its products now available in about 19,100 stores.
A2 received a solid revenue boost in the March quarter as consumers engaged in hoarding when the COVID-19 pandemic worsened, with the company describing revenue for this quarter as above expectations.
It said that some of this behaviour “unwound” in the June quarter.
“However, this will remain a dynamic situation and we will continue to monitor changes in consumer behaviour moving forward,” a2 said yesterday.
And looking to the coming year, the company was modestly upbeat even accounting for the uncertainty caused by COVID-19 and it is looking at a gross margin similar to the 31.7% for 2019-20.
“Globally, there continues to be uncertainty resulting from COVID-19, and the potential for moderation of economic activity. This could impact consumer behaviour in our core markets, as well as participants within the supply chain, most notably in China.
“Notwithstanding these uncertainties, overall for FY21, we anticipate continued strong revenue growth supported by our continued investment in marketing and organisational capability.
“FY21 EBITDA margin is expected to be in the order of 30% to 31%,” directors said.
Te shares ended the session down 6.3% at $18.25.
