Short seller’s ambush of WiseTech tactically dirty but effective


It is almost a month to the day that J Capital began its WiseTech squeeze.

Over the course of a week in October, shareholders watched this game of financial tennis. J Capital served up a report questioning the authenticity of WiseTech’s accounts. WiseTech returned serve a few days later. Almost immediately J Capital hit a damaging volley to which WiseTech lobbed yet another explanation.

The October game cost WiseTech almost $1 billion in market capitalisation.

The latest attack has also been expensive for WiseTech. Its shares were down almost 9.4 per cent by early afternoon on Tuesday – a cool $860 million wiped off its market capitalisation in three hours. They recovered slightly to close down 7.7 per cent to $26.65.

J Capital’s latest report had demanded the board’s answers to a series of questions – some of which were technical and of an accounting nature, others were designed to insert a wedge of doubt across a range of issues.

The chairman was ostensibly trapped on the podium unwilling to respond off the cuff. The company took several days to defend the previous two attacks and issued detailed rebuttals under the cover of a trading halt.

Caught in the AGM there was little Harrison could do. The company’s auditor jumped to his feet saying J Capital’s claims were baseless but provided no detailed response.

This time around the shares continued to trade – down.

And this is despite the fact that WiseTech chief executive Richard White reaffirmed 2020 revenue targets for growth of between 26 per cent and 32 per cent and a rise of between 34 and 42 per cent for earnings before interest, tax, depreciation and amortisation (EBITDTA).

But the short seller is again casting doubt on WiseTech’s characterisation of organic revenue versus revenue from companies that WiseTech has acquired over the past few years during its company buying binge.

This is now becoming an old debate. WiseTech has already prosecuted its case on how it determines in which column revenues sit. J Capital says the numbers are rubbery and organic growth is way lower than the company is stating. Throw in J Cap’s accusation $66 million of unexplained WiseTech costs and it’s easy to see why investors wobbled.

To be fair, investors haven’t fully recovered from the J Capital’s previous two short attacks.

While White’s strategy of buying a string of companies as a means of establishing WiseTech in new markets is well understood, it still makes some investors nervous.

They see the potential for execution risk in a company that trades on a price-earnings ratio of about 160 times.

If that wasn’t enough the short seller questions why WiseTech’s legal counsel resigned after only three months in the job. If there is a legitimate reason WiseTech would be wise to let the market know.

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Additionally J Capital asks, “Why is there a continued wall of silence over independent director Christine Holman’s decision to bring forward her departure date?”

It is a legitimate query and under normal circumstances would be a red flag.

But there was more. The growth of related party transactions also got an airing from J Capital. Although these were outlined in the company’s annual report, so not hidden, highlighting them only adds negatively to the general tenor.

The claim that WiseTech is overpaying on tax feels like a stretch. J Capital questions why WiseTech invoices offshore customers through Australia and in doing so pays 29 cents in the dollar. The hedge fund compares this with Microsoft, Google or Apple, some of which bill customers via lower taxing jurisdictions such as Ireland.

J Cap suggests WiseTech’s higher taxpaying approach is employed to take advantage of the “audit light structure it enjoys in Australia”.

Regardless of whether any of J Cap’s claims have substance, WiseTech’s shareholders and board must now have reached the conclusion that these agitators are not going away.

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