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.
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.
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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.
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