Last Thursday, J Capital – a research company that was founded in China, registered in America, and which is run by Australians – published a scathing report on WiseTech’s profits, saying that the company may have overstated profit by as much 178 per cent – almost $116 million.
J Cap also accused WiseTech of overstating its growth. They estimate WiseTech’s organic growth as 10 per cent – not the 25 per cent that WiseTech claims.
The report led to a 10 per cent drop in WiseTech shares before a trading halt was called.
“We are very concerned that the allegations in the document may mislead and manipulate the market to the detriment of WiseTech’s business and its shareholders, large and small,’ WiseTech wrote in their press release.
“Our financials, our revenue, our profit, our growth rates and our product have all been verified comprehensively and form part of the external independent audits conducted annually.”
WiseTech also refuted J Cap’s claims about their growth and profits.
A second trading halt was called on Monday when J Cap released Part 2 – “The Closer You Look the Uglier It Gets” – causing a further 9.7 per cent drop. In Part 2, J Cap claims that WiseTech does not properly integrate acquired businesses and fudges the numbers on customer churn rates, saying that most customers are not converted to the WiseTech platform.
Neither of the reports are technically legal to view in Australia.
So WiseTech has copped a savaging. Was it warranted? Maybe. J Cap’s analysis looks solid. And where there’s smoke, there’s invariably fire. WiseTech – like the rest of WAAAX – is probably overvalued.
But like a carnival fortune teller, J Capital also interprets portents and signs. Their reports highlight the abrupt resignation of the chair of the audit committee (WiseTech says she went on maternity leave), the fact that CFO Andrew Cartledge has no previous experience at a software company (just 24 years of experience in various CFO roles at General Electric affiliates – the man is clearly unqualified for the job) and negative online reviews as some of the other reasons WiseTech is not to be trusted.
While these claims don’t undermine the central research, they should raise eyebrows – J Cap seems to have thrown everything they can at the wall in hopes that it’ll stick, making the whole thing look like a barely-professional hit.
For their part, J Cap doesn’t really dispute that claim.
“Be warned. We are short-sellers,” reads a disclaimer on their website. “We are biased. We do our best to find and present facts, based on extensive primary research and using public sources. But we will profit if these stocks decline in value. We do not offer advice. We present our views.”
Are there maybe some misgivings about the true worth of WAAAX stocks? Did J Cap’s report perhaps just confirm what everybody already “knew”, even if in this case it wasn’t really warranted? Anxiety has been growing around WAAAX stocks for months. UBS slapping a “sell“ rating on Afterpay probably didn’t help WiseTech when J Cap unleashed the hounds.
Whatever the case, without further scrutiny, we’re stuck in a “he said, she said” situation. It is unclear what WiseTech will do next. Based overseas, beyond the reach of Australian regulators, J Cap is able to release their reports with impunity.
Even if the report turns out to be false – or at least, partly untrue – it will have been a high-impact, low-cost attack that might have benefited J Cap greatly.
Meanwhile, its reports have wiped $2 billion dollars – nearly 20 per cent – from WiseTech’s value since last Thursday.
