Megaport Limited 

MP1 Details

Business Update: Megaport Limited (ASX: MP1) operates in GICS: Internet Service & Infrastructure sector and is engaged in providing Network as a Service (NaaS) to customers using software-defined network (SDN). The company reports a total of 2455 customers as of 31^st Dec 2021 with 768 data centers. MP1 operates in three geographies that are Asia Pacific, North America, and Europe.

• Recently on 23^rd May 2022, the company notifies its shareholders regarding the cessation of securities (300,000 stocks) due to a lapse of conditional right as the condition was not met by the employee.

3QFY22  Updates:

• Due to the rise in the momentum of indirect sales channels Megaport reports growth in monthly recurring revenue from its prime business.
• Recent Q3FY22 results drove the company’s Underlying Monthly Recurring Revenue (MRR) by $0.6 million (up ~6% Q-o-Q). While the total revenue of the quarter was up by ~5% as compared to Q2FY22 and annualized recurring revenue as of 31^st March 2022 was $114 million.

MRR trend (Source: Analysis by Kalkine Group)

Key Risks: The sector demands innovation and strengthening of channel strategies to remain ahead of its competitors. The company is also exposed to COVID-19 risk as it has a global presence so a pandemic can have a negative impact on its operations.

Outlook: Growth is expected in MP1 due to momentum in its channel program and the company continue to accelerate since the launch of the program (Megaport PartnerVantage) in November 2021. The company expects to generate a higher yield from the channel program by converting more deals from partners (like Kio Networks, Arrow Electronics, Cisco, etc.) across the board. MP1 has recently expanded to the Mexico region with full products and services (which is the second-largest IT spending market in Latin America). MP1 business strategy to partner with a local company and capture the opportunity using partners’ networks will help in the improvement of its future revenue and margin.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 $6.510 - $22.000, respectively. The stock has been corrected by ~21.26% in the past one month. 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 the competition, negative margins, and COVID-19 impact, etc. For the purpose of valuation, a few peers like Firstwave Cloud Technology Ltd (ASX: FCT), Xero Ltd (ASX: XRO), NEXTDC Ltd (ASX: NXT), and others have been considered. Considering the expected upside in valuation, increasing revenue, expected growth future outlook, global expansion, and current trading levels, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $7.000, up by 0.430% as of 26^th May 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 for 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 a 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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