Megaport Limited

MP1 Details

Issue of Cleansing Notice: Megaport Ltd. (ASX: MP1) is an Australia based elastic interconnection services company with a market capitalisation of ~$2.52 billion as on 19 October 2020. On 2 October 2020, the company stated that it has issued 150,000 fully paid ordinary shares under the employee share option plan.

FY20 Key Highlights: For the year ended 30 June 2020 or FY20, the company reported total revenues of $58 million, up by 66% on y-o-y basis, underpinned by increased sales from the North America region contributing $26.3 million, up by 94% on y-o-y basis. The monthly recurring revenues reported a growth of 57% on a y-o-y basis and came in at $5.7 million. The total number of customers stood at 1,842 in FY20, up by 24% on y-o-y basis. Normalised EBITDA stood to $19.9 million, as compared to $24.7 million in FY19. In the same period, the Net loss widened to $47.7 million from $33.6 million in the previous corresponding year, owing to higher investments in headcount to support business growth. During FY20, the company has raised $134 million in two successful capital raising, in order to support expansion into new markets. The funds raised will be unitised for effective utilisation of resources to continue its operations. MP1 ended the year with a cash balance of $166.9 million, and a total asset of ~$248 million.

 FY20 financial Highlights (Source: Company Reports)

Outlook:  The company is well-positioned to achieve its objectives and looking forward to an expansion of its business operations to key locations in the Asia Pacific, Europe, and North America, particularly in Japan, where Megaport Ltd is the first global neutral interconnection fabric provider in the market. In FY21, the company expects to achieve EBITDA breakeven on an exit run-rate basis. The company is going to hold a virtual meeting on 22 October 2020.

Valuation Methodology: P/Sales Multiple Based Relative Valuation (Illustrative)

P/Sales Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As per ASX, the stock of MP1 gave a return of 41.22% in the past six months and a return of 62.9% in the last one year. On a technical front, the stock of MP1 has a support level of ~15.47 and a resistance level of ~$17.73. We have valued the stock using the Price to Sales multiple based illustrative relative valuation and have arrived at a target price with a downside of low single-digit (in % terms). For the purpose, we have taken peers like NEXTDC Ltd (ASX: NXT), Xero Ltd (ASX: XRO) and Afterpay Ltd (ASX: APT). Hence, considering the steep upside movement in the stock within the past months, and current trading level, we suggest our investors to wait for a better entry levels and recommend an ‘Expensive’ rating on the stock at the current market price of ~$16.65, up by 1.772% on 19 October 2020.

MP1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

PRAEMIUM LIMITED

PPS Details

Purchase of remaining shares in Powerwrap: Praemium Limited (ASX: PPS) is engaged in the investment management, portfolio administration, client relationship management (CRM) solutions and investment platforms tools to support wealth management business. The company divided its business segments among Australia, United Kingdom and Asia region. On 22 September 2020, the company announced that they would compulsorily purchase the remaining shares of Powerwrap as they currently own 94.16% of shares. Under the transaction, Powerwrap shareholders will receive 7.5 cents in cash and 1 Praemium share for every 2 Powerwrap shares.  As per the announcement on 5 October 2020, the Off-market takeover for the remaining shares is still pending, and the company has not provided any date to acquire remaining shares for the same.

FY20 Financial results: In FY20, the company reported Global FUA (Funds under Administration) of $20.3 billion, up by 26% year over year. The company posted revenues of $51.2 million, up 14% on y-o-y basis, mainly due to 11% y-o-y increase in revenues from Australian business segment. Furthermore, the international business segment revenues reported a growth of 1% on y-o-y basis at $11.8 million. Underlying EBITDA, increased by 25% to $14.2 million, while net profit after tax came at $4.9 million, reporting an improvement of 91%. Adjusted EBITDA margin stood at 28% as compared to 25% reported in FY19. Earnings per share, increased by 89% to 1.2 cents per share in FY20.

FY20 financial Highlights (Source: Company Reports)

Outlook:  The merger of Powerwrap and Praemium will create an improved financial platform of business with combined FUA of over $28 billion. The transaction is likely to place the company in a more robust position in this highly competitive market. Due to Australian and state government restrictions, the company is going to hold a virtual meeting on 17 November 2020. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Despite the challenging operating environment, PPS continued to focus on investing in Powerwrap and improving the operational performance of its portfolio. As per ASX, the stock of PPS gave a return of 10.37% in the past one month and a return of 30% in the last three months. The stock is trading close to its 52-weeks’ high level of $0.69. On a technical front, the stock of PPS has a support level of ~$0.47 and a resistance level of ~$0.685. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of Low-Double digit (in % terms). Considering the current trading levels, merger of Powerwrap, positive long term outlook and decent financial performance amidst the COVID-19 uncertainty, we recommend a ‘Hold’ rating on the stock at the current market price of ~$0.585, down by 0.848% on 19 October 2020.

5G Networks Limited

5GN Details

5GN Takeover Update: 5G Networks Limited (ASX: 5GN) is an Australia based cloud infrastructure and high-speed internet broadband services provider. As on 19 October 2020, the market capitalisation of the company stood at ~$186.49 million. Recently, Webcentral Group (WCG) has announced that it has accepted the offer to get acquired from 5G, after receiving an outbid from web.com. As on 16 October 2020, the company announced that it had defeated the outbidding competing offer from Web.com to acquire Webcentral. The offer is currently scheduled to close before 27 October 2020 unless extended. Also, the company has issued 58,788 fully paid ordinary shares under the dividend reinvestment plan.

FY20 Financial Highlights:  5GN declared its annual results, wherein the company posted total recurring revenue of $49.8 million, which declined by 2.8% on pcp, but reported a recurring revenue growth of 16% driven by migration of customers to higher-margin recurring revenue streams. In the same time span, operating EBITDA for the period significantly increased by 96% year over year and came in at $6.3 million, underpinned by effective measures taken to cost savings and the integration of accretive acquisitions, which have driven several cost synergies. The company declared a fully franked final dividend of 1 cent per share, paid on 16 October 2020. Net loss for the period stood at $1.5 million, as compared to $4.1 million reported in the year-ago period. The company exited the period with cash and cash equivalents of $22.1 million.

  FY20 Financial Highlights (Source: Company Reports)

What to Expect: In FY20, the company has completed acquisitions of Sydney, and North Sydney data centres and the company is looking forward to pursuing more M&A activities to support 5GN expansion. Furthermore, the company has provided guidance for FY21 and is expecting EBITDA to be between $8 million and $8.5 million and revenues to be in a range of $60 million to $65 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of 5GN gave a return of ~80.10% in the past six months and 49.56% in the past three months. Currently, the stock is trading above the average of its 52-weeks’ level. On the technical analysis front, the stock of 5GN has a support level of ~$1.583 and a resistance level of ~$1.937. Considering the above-mentioned factors, merger with Webcentral, attractive returns in the past six months, and decent financial results we recommend a ‘Hold’ rating on the stock at the current market price of $1.72, down 1.433% on 19 October 2020.

5GN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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