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Speaker 1: Welcome to the Fear and Greed Summer series. I'm Suan Aylmer.

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Speaker 1: Today I'm talking to gorav Sony, deputy head of research

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Speaker 1: at Intelligent Investor, and we're looking at WIS Tech Global

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Speaker 1: at tech STOC that's had more than its fair share

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Speaker 1: of controversy and governance issues over the past eighteen months

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Speaker 1: or so. Remember this is general information only, and you

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Speaker 1: should seek professional advice before making investment decisions to Welcome

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Speaker 1: to Fear and Greed.

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Speaker 2: Thank you saw and great to be here.

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Speaker 1: So WIS Tech is probably the post boy for people

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Speaker 1: who say governance matters. It is a high flying business,

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Speaker 1: incredible software. No one sort of argue that, however, has

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Speaker 1: all sorts has had governance issues involving its founder and

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Speaker 1: now executive chair former CEO Richard White. How do you

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Speaker 1: read WIS tech GOREV.

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Speaker 2: Yeah, this would have to be one of the most

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Speaker 2: fascinating stories of twenty twenty five. I think this is

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Speaker 2: engrossed so many investors because it has this the wonderful

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Speaker 2: combination of a highly successful, unique piece of software married

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Speaker 2: to a flawed founder. And you know, the share price

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Speaker 2: was really expensive. It's now come down, so investors have

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Speaker 2: to make this decision. At what point is the share

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Speaker 2: price attractive enough to offset all these flaws that are

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Speaker 2: coming out about the business. And it's a difficult question

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Speaker 2: to answer, Sean. I think that's probably what we're going

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Speaker 2: to get stuck into now, is my guess.

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Speaker 1: Yeah, exactly. I mean the alligator there are allegations about

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Speaker 1: his Richard White's behavior, how his relationships with staff members. Well,

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Speaker 1: keep in mind that many of these are still allegations.

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Speaker 1: That's fine, but certainly governance. At what point does big

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Speaker 1: money and I'm talking super funds and stuff like that

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Speaker 1: just say the risk is too high.

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Speaker 2: Look, it's not only about personal conduct. I mean, my

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Speaker 2: concerns are much broader than that. There are two main

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Speaker 2: things I'm concerned about. One is the very aggressive accounting

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Speaker 2: treatment of coming from Wistech, which I think actually over

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Speaker 2: states profit. Now, we don't want to get lost in

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Speaker 2: the accounting weeds here. No one wants to listen to

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Speaker 2: three or four minutes of us talking about accounting. But

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Speaker 2: it is very important to understand that businesses, especially when

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Speaker 2: their software businesses, have a lot of leeway in what

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Speaker 2: they can record as a cost and what goes on

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Speaker 2: the balance sheet. As a cost to be depreciated over time.

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Speaker 2: They basically have free reign about how to handle those expenses. Now,

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Speaker 2: if you put something down as a cost on day one,

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Speaker 2: your profits are smaller. So what wise Tech has gradually

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Speaker 2: been doing is they've been capitalizing, which is the technical

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Speaker 2: term for putting costs onto the balance sheet, more and

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Speaker 2: more of their development costs. So they used to capitalize

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Speaker 2: about thirty percent of the dourbment costs. They're now doing

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Speaker 2: almost sixty percent. And what that does it makes the

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Speaker 2: margins look fatter, and so it looks like the business

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Speaker 2: is actually growing its margin. When we did then we

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Speaker 2: actually realized that margin expansion, about eighty percent of margin

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Speaker 2: expansion has come from this accounting decision to put costs

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Speaker 2: onto the balance sheet and not on the income statement.

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Speaker 2: And so that has me a little concerned. And then

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Speaker 2: you've got, on top of that, you've got this entire

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Speaker 2: management fiasco where the business needs a strong chair to

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Speaker 2: rein in the managing director of the founder. It needs

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Speaker 2: a bench, a deep bench of managers to do the

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Speaker 2: same thing, and it just has not been able to

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Speaker 2: attract that this is a twenty billion dollar business and

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Speaker 2: the board scene in Australia is pretty small and localized,

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Speaker 2: and yet we haven't seen the quality of board that

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Speaker 2: we would expect in a high flying twenty billion dollar

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Speaker 2: business turning up and knocking on the door at Wistech.

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Speaker 2: So those two things have me very concerned about wyseecond,

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Speaker 2: that's one, and they're the reasons why we haven't made

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Speaker 2: an entry into the stock and why I don't think why.

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Speaker 2: I think in best they should show a lot more

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Speaker 2: caution before bouncing around on the back of bad news

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Speaker 2: or a low share price.

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Speaker 1: The other side of the coin with Wisteak is product.

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Speaker 1: It's software. Product is world class. Though that's correct, isn't it.

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Speaker 2: You're quite right. It's not only just that it's software

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Speaker 2: is fantastic, but it's got these wonderful qualities that every

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Speaker 2: additional customer who joins cargo wise gets, you know, there

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Speaker 2: they make it a better product for everyone else as well.

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Speaker 2: So it's got these wonderful sort of network effects where

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Speaker 2: the more people they attract, they actually increase the moat

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Speaker 2: of the entire piece of software. So we would not

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Speaker 2: even be talking about Wysteak. It would not even be

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Speaker 2: a discussion if not for the sensational software that sits

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Speaker 2: the part of the business. But as I said, the

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Speaker 2: difficulty is, you know, marrying the aggressive accounting with the

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Speaker 2: very peculiar decision not to get an a class board

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Speaker 2: and certainly not an experienced tonight. Th think an experienced

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Speaker 2: relevant chairman who is up to the task of managing

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Speaker 2: a very large business, a globally significant business, and doing

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Speaker 2: that while raining in the founder. If we move across

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Speaker 2: to MinRes, which has also had its share of problems,

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Speaker 2: that's a business that I think has very successfully managed

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Speaker 2: that task. They bought in quite a strong chairman who's

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Speaker 2: managed to rain in the founder, and you can see

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Speaker 2: the market has become much more comfortable with that business

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Speaker 2: and the share price has flown. I think a similar

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Speaker 2: thing needs to happen at Wistech for a similar result.

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Speaker 2: So although we're pretty enthusiastic about MinRes, we're showing a

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Speaker 2: lot more caution over Weistech.

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Speaker 1: Great. Thank you for talking to Fear and Greed summer series.

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Speaker 2: Thanks Sean dos.

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Speaker 1: Gore Sody, Deputy head of research at Intelligent Investor. Don't

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Speaker 1: forget to follow on the podcast, new episodes every day.

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Speaker 1: I'm sure I alm and this is fear and greed