MP1 - Megaport Limited

[Dona Ferentes]

all time high

Monday night's Global update laid the foundations
Wednesday's Full Year Result pushed it higher:
Growth in Ports, Services, and Revenue

Revenue $58.0M up 66%
Profit after direct network costs of $29.5M improved by $17.6M
Profit after direct network cost margin of 51% improved from 34% in FY19
Normalised EBITDA loss of $19.9M, 34% of revenue (FY19: 70% of revenue)

(Hold; free carry) (x7 bags)

 

[Dona Ferentes]

Analysts discuss stocks (and promote their books): From July
Livewire Markets: Okay, let's round out our top five. Megaport, one of the new kids on the block in the Australian technology scene. Buy, hold, or sell?
Jun Bei Liu (Tribeca): It's a buy. I like Megaport because Megaport is probably the only cloud infrastructure company that you can find in this market. Yes, there's NEXTDC but NEXTDC is the future, essentially the future property trust. They build assets for companies to use and so that's more cloud-related and demand for that type of product is going through the roof and COVID certainly has speeded up that kind of adoption.
Now, Megaport is the future Telstra and it has innovated that space and it's global. It's the largest in its sector because it's the innovator and it's got enough runway for it to continue to expand global dominance. For me, it's one of the rare exposure to that space in the Australian market.

Livewire Markets: Okay. Eleanor, moving to the cloud, it's been one of the major trends in the structural shifts that we've seen accelerate through the past few months. Buy, hold, or sell on Megaport?
Eleanor Swanson (Firetrail): Jun Bei, I promise I'm not copying you but I'm a buyer on Megaport as well. What the company does is they facilitate the transfer of data by virtual cloud connections and they've got an amazing first mover advantage in building out their network footprint. The company has currently got 600 data centres, that is double their nearest competitor, and they've also managed to double the number of data centres installed on their network over the last 12 months. We expect the company to continue these phenomenal growth rates. And in addition they've got a new product pipeline which we expect to support valuation going forward, so it's a buy.

Late June, Megaport added to the S&P/ASX200 Index, and the broker chatter lifts..... as well as the July comments (above), then in August:

Livewire Markets : One company that's had a bit of a breather in its share price run is Megaport. Buy, hold, sell?
Tobias Yao (WAM) (Hold): Megaport is a hold for us. We really like the business long-term. It's a leader in its niche. It's about two to three times larger than the next competitor. It's exposed to cloud adoption and it's helping businesses connect to their cloud service providers. It's a hold for us purely because we're looking for a better entry point.

Livewire Markets: Okay. It's all about the cloud. Buy, hold, sell on Megaport?
Arden Jennings (Ausbil) (Buy): Yeah, it's a buy for us, Vishal. High conviction position within our smaller micro-cap funds. Megaport, as Tobias pointed out, is really exposed to the adoption of the cloud. And Megaport's providing network as a service, connecting up cloud technologies amongst various data centres globally. So if there's one chart that I could point our listeners to, it would be the customer cohort chart they produce annually in their results. And it demonstrates that the customers love Megaport's product and that's shown in the adoption of their services and also the monthly revenue that they're receiving per port. And it's backed by great management and Bevan Slattery as founder is still on the board and still a significant shareholder. So we see the pullback in the share price as definitely an opportunity. And I think this is one where you can let your winners run.

and in September

Matthew Kidman (Livewire Markets): Okay. Let's jump into an area you know well. Data centres, the cloud, Megaport, appropriate name. Taking on the world in that area. Buy, hold or sell?
Gary Rollo (Montgomery): Megaport is a buy. Look, this company has an interesting proposition, not just here in Australia, but globally. And, as the name suggests, it is solving a problem that was not around yesterday. Corporate computing networks were designed for the old age. In the new world of cloud, you don't know what you've got to connect to and when. Megaport solves that problem, and it solves it in an elegant way. It has got a huge addressable market. And for us, that is one of the most interesting tech stories on the ASX and globally today.

Matthew Kidman: Megaport: mega by name, mega by price. Went up about 120 per cent since the [March] bottom. Chris, buy, hold or sell?
Chris Stott (1851 Capital): Sell. So, really good company, Matthew, but the valuation is incredibly stretched to us. 26 times revenue, yet to be positive in terms of from an EBITDA perspective. So, we think it has certainly had a strong run, as you mentioned, off the lows in March. So, sell.

- not that all of that means a hill of beans, but grist to the mill.

 

[Dona Ferentes]

don't meet lofty (unrealistic?) expectations, and what happens?

Megaport has reported a strong increase in product uptake and customers through the first quarter of the year. Quarterly new ports rose 10 per cent quarter on quarter with 138 new customers added, an increase of 7 per cent. Both were record quarterly increases. North America was the strongest contributor, responding for 63 per cent of growth in new customers and 58 per cent of new ports.

“Our investments in North America, in terms of network footprint and commercial capabilities, yielded excellent results this quarter and contributed significantly to our record quarterly Port and customer performance," said Megaport chief executive Vincent English. "This will have a positive impact on MRR (monthly recurring revenue) from Q2 onwards. North America is our fastest growing region, with USD revenues growing 11 per cent QoQ and now accounting for 47 per cent of our total revenue."

 

[Dona Ferentes]

don't meet lofty (unrealistic?) expectations, and what happens?

...

Megaport reports solid quarterly growth with underlying Monthly Recurring Revenue 1 up 10% and reported Monthly Recurring Revenue up 8% QoQ. Total Services were up 6%, and Megaport Cloud Router up 11% in 2Q FY21.
- these are modest numbers.

Megaport will launch Megaport Virtual Edge (MVE) in 2H FY21. As announced on 17 August 2020, MVE will provide a platform to virtualise network functionality – for example, SD-WAN – to enable businesses to connect to services through Megaport from more locations around the globe – including branch offices, corporate campuses, and point-of-sale locations. Cisco is the first technology partner to announce MVE integration with more integration partners planned in the coming quarters.

- running to stand still?

( still HOLD/ FC. last sale at $15.12)

 

[Dona Ferentes]

1HFY21 Financial Highlights
● The Company’s revenue for the half-year period ended 31 December 2020 was $36.0M, an increase of $10.1M or 39% from the same period ended 31 December 2019.
● Monthly Recurring Revenue (MRR) for the month of December 2020 was $6.3M, an increase of $1.7M or 37% from December 2019.
● The business generated a profit after direct network costs of $18.2M for the half-year period ended 31 December 2020, an increase of $5.1M or 38% from the same period ended 31 December 2019 ($13.2M).
● Net loss for the half-year period ended 31 December 2020 was $38.4M.
● At 31 December 2020, the Company’s cash position was $144.2M

As of the second quarter of Fiscal Year 2021, all three of our operating regions are EBITDA positive. This puts us on track to achieve our goal of Group EBITDA break even on a run rate basis within Fiscal Year 2021.

 

[Dona Ferentes]

Ignoring the Covid dive, would it be fair to say the 18 month trend of higher highs has reversed as the rotation from growth / tech into value has been well and truly established.

(Still HOLD, but as a free carry)

 

[bk1]

Thats true, as long we remember that this is a rotational play that started at the turn of the year. Does not mean we should throw the MP1 and NXT type stocks out the window, at least not in my opinion.

 

[finicky]

Volume isn't picking up which I guess is a plus but pretty ominous looking chart. Shouldn't have broken strong support around $12. 'Retested' $12. Makes me think of a head and shoulders and the conventional measured target for that would be around March Covid low. Anyway, doubt that anyone chart based would be buying it.

 

[Dona Ferentes]

retesting $12 . again. but this time through +4%

Nice warm and fuzzy letter to shareholders (performed as we should during Covid)
Update: mid single digits

In 3Q FY21, Megaport saw continued growth in Monthly Recurring Revenue (MRR), up 8% QoQ to $6.8M in March 2021. Total revenue for the quarter was $19.6M, up 5% compared to 2Q FY21. In March 2021, Megaport achieved 2,117 customers, up 4% QoQ, 7,037 Ports, up 5% and total services of 29,056, up 4% QoQ, and 422 Megaport Cloud Routers, up 10% QoQ.

Outlook : great team, etc. Fiscal Year 2021 has highlighted the strong operating leverage in our business model and we remain on track to achieving EBITDA breakeven, on a run rate basis, by June 2021.

 

[Dona Ferentes]

the last 6 days have been green, and 20% lift with very little retracement during the run

 

[Dona Ferentes]

Megaport’s valuation does look frothy. The market cap is more than $2 billion, yet over H1 FY 2021 it more than doubled its net loss to $38.4 million on revenue of just $36 million. This is attracted the shorters; a significant 8.1 per cent of Megaport’s shares, worth about $166 million, are still short sold.

Bevan Slattery took to corporate soapbox LinkedIn earlier this month to taunt a trader betting on share price falls for Slattery’s latest sharemarket venture, Megaport. Slattery reckons the trader short sold 11 million shares only to watch the price rise. He also stated that over a single day recently, he fielded and rejected four calls from investment bankers and brokers asking if he might consider selling some shares, presumably, to help his short-selling enemies cover their positions.

 

[Dona Ferentes]

Bevan Slattery took to corporate soapbox LinkedIn earlier this month to taunt a trader betting on share price falls for Slattery’s latest sharemarket venture, Megaport. Slattery reckons the trader short sold 11 million shares only to watch the price rise. He also stated that over a single day recently, he fielded and rejected four calls from investment bankers and brokers asking if he might consider selling some shares, presumably, to help his short-selling enemies cover their positions.

and he might have won this round.... from $13 some seven days ago, there has been a rise each day since, to cross through $15 a share today.

 

[Dona Ferentes]

MP1 closed at $17.60 which is an ATH. Only 5 down days in last 5 weeks.

 

[Dona Ferentes]

still pushing higher; has hit $18.27 ... up 5% today (actually just 3.5% to a new high ; but the general market is down nearly 2%)

there have not been any Change of Significant Holdings since March, when MUFG lodged

 

[Dona Ferentes]

still pushing higher; has hit $18.27

and down a buck, in the last 2 days

there have not been any Change of Significant Holdings since March, when MUFG lodged

...there was an AFR item, about an early investor selling out, which is probably enough to knock the price around for a while

A $34 million parcel of shares in Megaport is up for grabs through Citi's equities desk, with books set to close at 7:30pm on Thursday night. Bids for the 1.95 million block of shares are being accepted between $17.55 and $18.09 per share, underwritten at the floor price.

The seller is a subsidiary of NYSE listed data centre services business Digital Reality, Digital MP LLC, which

first declared a substantial shareholding in December 2017, when Megaport shares were trading at about $2.50 each. Its large selldown last year came at a price of $13.35 per share, generating $100 million.

 

[finicky]

It has seemed to me that a lot of stocks that were performing strongly in fy21 have been taking a knock. So it could be the inverse of eofy selling of weak stocks to rack up the cgt loss. Selling now forestalls the tax payment for well over a year. I have been hanging out for the new financial year myself for the liberty of selling down a couple of high performers (CHN, CDA) to build cash but it looks like others got in ahead of me.

 

[Dona Ferentes]

last four weeks for MP1 have seen solid buying, usually driven by bots. From around $16 at start of Oct, today it has reached an all-time high of $19.30

(and a nine and a half bagger for me)

 

[Dona Ferentes]

MP1 listed late 2015 at $2 a share, and Megaport has closed above $20 for the last two sessions ... even made it to $20.88 before the close of $20.38

I am going to claim it as a Ten Bagger, and a free carry at that; since getting interested, and buying in:
3,200 at 3.27 on 09 Feb 2016
1,800 at 2.50 on 08 Mar 2016
4,264 at 1.70 in SPP on 22 Aug '16 plus a top-up to bring it to 5k

For once, the folly of averaging down has paid off, as the next buys, both SPPs, were at 3.75 and 4.00 in 2018 and 2019, then the last SPP in Apr 2020 at 9.50. A feature has been that all four SPPs have been heavily scaled back. Sold a few in Aug '19 at 7.90 and again before last SPP at 10.97. Last sale was Aug last year at 15.12. All up, I've put in $38K in 6 buys and taken off $49.5K in three sales.

- still don't entirely know how the company does what it does,

 

[Dona Ferentes]

MP1 cruising through $11

but couldn't make it to $22.01. Hit the even dollar number 7 times today, but not cent more. Nevertheless the retreat was only a coupl'a cents. Closed 3% up for the day at $21.88

Thats true, as long we remember that this is a rotational play that started at the turn of the year. Does not mean we should throw the MP1 and NXT type stocks out the window, at least not in my opinion.

wise words, from late March .... Yes yes and yes. basically you called the base, @bk1 . the rotation rerotated/ derotated/ twisted off, and since then it's been upward and onward

(NXT is basically a REIT, to me)

 

[bk1]

I sense some consolidation, M&A activity coming soon to the sector.
Not necessarily MP1....