MP1 Details
This report is an updated version of the report published on the 22 April 2022 at 3:55 PM GMT.
Megaport Limited (MP1.ASX) is engaged in providing Elastic Interconnection Service for connecting secure and on-demand connections between enterprises, networks, and services.
Focus on 3QFY22 Key Numbers:
- Top-Line Performance: In 3QFY22, the company’s total revenues increased 5% QoQ and came in at $27.9 million. Total Monthly Recurring Revenue (MRR) for the period stood at $9.5 million, up 3.3% from the prior quarter. Foreign exchange headwinds from a strengthening Australian dollar aided MRR growth.
- Robust Customer Base: During the period, the company recorded 2,541 customers across 771 Enabled Data Centres and 409 across Installed Data Centres. Total customers during the quarter depicted a rise of ~4% on a quarterly basis.
- Liquidity Position: The company has built a decent balance sheet position with a cash balance of $88.8 million. Cash receipts from customers amounted to ~$29 million, slightly up from $28.7 reported in the prior quarter.
- Key Developments: During the period, the company unveiled its full suite of products and services in Mexico. Additionally, strategic alliances with TD SYNNEX, Cisco, and Arrow Electronics aid MP1 in providing multi-cloud and cloud-to-cloud IT architectures on the Megaport platform.
Customer Growth Trend (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to the risk related to a breach of information security that could result in loss of customers and revenue and could adversely affect the company’s future financial performance.
Outlook: Looking forward, the company would be focused on driving revenue via a channel through PartnerVantage programe. The company also remains on track to provide a virtualised network functionality platform to enable businesses to connect to services via Megaport from different places globally. With its recent deal with Arrow Electronics, MP1 remains focused on operationalizing its most recent collaboration with TD Synnex.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of MP1 is trading below its 52-week low-high average of $8.58 - $22.000, respectively. The stock has been corrected by ~50.14% in the past six months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering COVID-19 uncertainties and negative earnings. For the purpose of valuation, a few peers like NEXTDC Ltd (ASX: NXT), WiseTech Global Ltd (ASX: WTC), and Altium Ltd (ASX: ALU), and others have been considered. Considering the expected upside in valuation, rising revenue, growth in MRR, decent outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $8.70, as of 22 April 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
MP1 Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock price.
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