Megaport: Starting the year with a strong Q1

About the author:

Nick Harris
Author name:
By Nick Harris
Job title:
Senior Analyst
Date posted:
24 October 2018, 8:55 AM
Sectors Covered:
Telecommunications, Technology and Financial Services

Q1 FY19 trading update – the trajectory is up strongly

Megaport Limited (MP1) added 13 Data Centres in the quarter, taking the footprint to 234 (including 109 Cloud on-ramps). Footprint expansion was comfortably outpaced by 10-20% QoQ growth in customers, ports, services and monthly recurring revenue. Annualised Monthly Recurring Revenue was up 20% QoQ to A$28.6m, driven by more customers using more services from Megaport.

Cash operating costs were down QoQ and were lower than expected at a gross annualised level of approximately A$50m. This appears to be largely timing related and we expect underlying costs to increase in Q2 FY19 (Q1 FY19 cash costs included approx. A$1.5m of non-recurring items).

Quarterlies can be notoriously lumpy and therefore difficult to annualise, however the revenue trajectory was higher and cost trajectory lower than we had anticipated. If these trends continue there is likely upside risk to our FY19 forecasts.

The specific trends

MP1 delivered several record organic growth numbers in Q1 FY19. Customers numbers increased 12% QoQ or +123 in the quarter. This rate is double the last two-year average and seems likely a function of North America gaining increased traction. North America now accounts for 47% of MP1's 234 Data Centre wide footprint. Ports increased 10% QoQ or +271 and was about 50% higher than the last two-year average. Services per port edged higher to 2.5. More customers, more ports and more services is a positive combination and the net result was that revenue per port increased by 9% QoQ.

MP1 exited the quarter with annualised revenue of A$28.6m, an annualised burn rate of A$41.9m and cash at bank of A$46.7m. We expect additional sales hires in early FY19 (including the recently completed Q1) should lead to an acceleration in the rate of sales towards 2H19 and MP1's burn rate to decline from current levels.

MP1 noted data centre partnerships have been entered into with DataBank, DataMSP, Cavern Technologies and STT GDC.

Investment view

Quarterlies can be lumpy so at this stage we make no changes to our forecast, valuation or share price target (Morgans clients can login to view). We expect Q2 FY19 will likely deliver a similar trajectory as Q1 and that Q3 and Q4 should, all going to plan, see an acceleration in sales.

The key risks and rewards for MP1 relate to ecosystem expansion, sales execution and generating cashflow to fund MP1's growth programs.

We retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for Megaport Limited (MP1). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Morgans Corporate Limited was a Joint Lead Manager to the placement, block trade and share purchase plan for Megaport Limited and received fees in this regard.

Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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