Shares in WiseTech Global (ASX:WTC) fell by more than 10 per cent on Thursday, following the release of an analyst report that was critical of the company’s accounting practices.

The stock closed at $33.44 yesterday, and slumped to $30 this morning before entering a trading halt pending an announcement from the company to comment on the allegations.

 

WiseTech entered the ASX in 2016 at $3.35 and even with today’s fall is still substantially higher than when it listed.

The logistics software stock has been so successful it leads an acronym of tech stocks – WAAAX; which have made similarly large gains. The other companies are Appen (ASX:APX), Altium (ASX:ALU), Afterpay (ASX:APT) and Xero (ASX:XRO).

Tech attackers are getting personal

While analysts have accused the entire tech sector of being over-valued considering much of it is unprofitable; few companies have been targeted except for the buy now pay later stocks and even then half of the concern was over regulatory issues.

But in its report released overnight, the China-based J Capital was highly critical of Wisetech, accusing the company of overstating its profits.

“You may be forgiven for thinking that WiseTech, trading at 30x revenue, is an Australian tech darling like Atlassian built by two coders in their garage, that has become a global behemoth”, it said.

“WiseTech is more of a clunker. It began life in 1994 as Eagle Developments International and was unspectacular for 20 years. The company has been cobbled together through hasty acquisitions”.

“We have spent months analysing the company and concluded that WiseTech is manipulating its accounts to make growth and profit appear higher than they really are”.

Among its accusations against WiseTech:

    • Overstating its profit by 178 per cent
    • Reporting organic growth as 25 per cent. J Capital estimated it was at 10 per cent – a decline from the previous year
    • Overstating European revenues by up to $48 million in FY2018
    • Incorrectly expensing employee salaries and benefits by double counting them – putting them on the balance sheet.
    • Inconsistently reporting growth by only stating it in the half-year and comparing revenue for a 18 month period within 12 months – meaning it cannot be reconciled with full year numbers.
    • Questionable treatment of acquisitions by moving invoicing into un-audited subsidiaries in Australia which promptly report big revenue gains.
    • Shielding revenues in international subsidiaries through ‘deed of cross guarantee’ laws. These allow subsidiaries exemption from reporting and being separately audited if they enter into an agreement to guarantee one an-others’ debts.

On the topic of shielding revenues, J Capital was particularly forthright: “We think WiseTech’s inventions were becoming outlandish, and the company needed a means of shielding itself from close attention to its accounts. Conveniently, it found one.”

More to come…

J Capital added that today’s report forms only part one of its Wisetech Analysis. In the next edition, J Capital promised to disclose interviews with dissatisfied customers and scrutinise acquisitions Wisetech had made.

Trading in WTC is halted until Monday. Stockhead contacted Wisetech this afternoon for comment, and a spokesperson advised that the company would respond on Monday.

WiseTech is not the first ASX-listed company to be hit with accusations like this. Real estate stock Rural Funds Group (ASX:RFF) fell 40 per cent in August after being accused of fraud by Bonitas Research in August.

It has been able to salvage some of its value since an EY audit cleared the company of wrongdoing, directors put their own money into the stock and it sued Bonitas for the allegations.

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