Tale of Megaport Limited: Capital Raising, Latest Financials and COVID-19 Risk

  • Apr 08, 2020 AEST
  • Team Kalkine
Tale of Megaport Limited: Capital Raising, Latest Financials and COVID-19 Risk

The novel coronavirus, SARS-CoV-2 has spread as rapidly as wildfire and has inflicted long-lasting harm on almost all the financial markets across the globe. Australia, like other economies, has borne the brunt of the infectious disease with the S&P/ASX 300 index dropping 22 per cent in YTD, from 6653.76 to 5162.1. The lowest point was hit on 23 March 2020 when the index fell to 4500.

 

Here in this article, we are discussing an IT player that forms a part of the S&P/ASX 300 index – Megaport Limited.

 

Interesting Read: Blue-Chip ASX Resources Stocks – Are They the Best Among All

 

Megaport Limited (ASX:MP1)

Elastic Interconnection services company Megaport provides the simplest way to link to the services that power the business of its clients. MP1 enables clients to quickly connect their network to different services of the company’s network via Software Defined Networking. Clients can directly control the services through computers, mobile devices or MP1’s open API.

 

Also Read: ASX Outperformers in Tech Space – XRO, IRE, ALU, MP1, TNE

The Company holds a robust financial position, with a cash balance of $108.7 million and $119.9 million at the end of March 2020 and the end of December 2019, respectively.

 

3Q FY 2020: MP1 has broadened its network footprint presence to new markets in the March quarter. The Company added one, five and six new sites with a total of 167, 331 and 103 Enabled Data Centres at Europe, North America and the Asia Pacific, respectively.

 

For the third quarter of FY 2020 (period ended 31 March 2020), following are the critical attributes along with the percentage change on a QoQ basis.

 

  • Total installed and enabled data centres were 329 and 601, an increase of 12 (up 4 per cent) 12 and 49 data centres (up 9 per cent), respectively.
  • Revenue stood at $15.19 million, an upsurge of 10 per cent.
  • Customers increased by 6 per cent to a total of 1,777.
  • For March 2020, the total Monthly Recurring Revenue (MRR) increased by $0.9 million (up 19 per cent) to $5.4 million.
  • Total Megaport Cloud Router (MCR) increased to 268, up 18 per cent.
  • Total ports increased to 5,375 (+11 per cent), with the average revenue per port rose to $1008, up 8 per cent.
  • Total services were increased to 15,531, up 12 per cent. Of which Virtual Cross Connects rose to 8,529 or 14 per cent higher than the previous corresponding period.

 

Capital Raising worth $65 million

 

On 8 April 2020, Megaport announced the completion of its equity raising of nearly $50 million via a fully underwritten share placement to sophisticated, institutional and professional investors.

 

  • Under the placement, MP1 issued 5,263,158 fully paid ordinary shares at an issue price of $9.5 per share. The issue price signifies an 8.9 per cent discount to $10.43 per share, which was the closing price on 7 April 2020.
  • The placement was embarked by excellent support from new and existing investors and robust demand from offshore and domestic institutional investors.
  • On the Placement, RBC Capital Markets and UBS AG (Australia Branch) will perform the role of joint lead managers. The fee of these lead managers will be 0.5 per cent of gross proceeds from the placement.
  • Important dates relating to the placement: Placement’s settlement date is likely to be 14 April 2020, and Placement Shares will be allotted on 15 April 2020.

 

SPP: As announced on 7 March 2020, the Company will also present a Share Purchase Plan (SPP) for a total of up to $15 million.

 

  • SPP offers the ability to apply and subscribe for a maximum of $30,000 of new shares for each eligible shareholder in New Zealand and Australia.
  • SPP shares will be distributed at the issue price of the placement.
  • Important Dates: Around 17 April 2020, the SPP offer documentation will become available and despatched to eligible shareholders will be made available on ASX. The closure date for SPP offer is 4 May 2020 and SPP shares will likely be allotted on 11 May 2020.

 

Use of proceeds: While experiencing considerable growth, Megaport has plans to utilise the proceeds from the capital raising process in several activities, including the following:

 

  • These activities include a further increase in sales and development of the product.
  • To advance core network ability into 400G and further than 1T.
  • To increase footprint and capacity in the MP1 hosted infrastructure for greater acceptance of Megaport Cloud Router services.
  • The proceeds will also allow MP1 to explore future strategic opportunities. (Details with amount are mentioned in the below table)

 

Risks arising from COVID-19

 

The Company mentions that there is a possibility that it may face an adverse material impact on its financial and operational performance due to COVID-19 that has brought businesses across the world to a standstill. Due to the prevailing conditions wrought by the coronavirus, most of the businesses are facing a challenge to meet their prospects. MP1 further states that the severity or uncertain duration of this virus is very crucial to know as the operations may get suspend or interrupt.

 

Way Forward plans of MP1

The nature of the business of Megaport is not capital intensive. The Company aims to explore and build new locations, new markets, sale of ports and services to all its customers. Also, MP1 focuses on customer acquisition & retention and continuing the maintenance of software platform and existing infrastructure. Major plans of MP1 include:

 

  • Clear focus to remain on the path of profitability and on-track with network expansion, continued execution, and attaining operational goals.
  • To continue the growth to new markets which are on target to install 380 DCs by 1 July 2020.
  • Businesses are moving to digital enablement of remote employees with a greater dependence on the public cloud. This gives rise to an opportunity for MP1 to expedite elastic interconnection business.

 

Stock performance and Price Movement

MP1 has delivered positive returns of 22.71 per cent, 0.68 per cent and 0.19 per cent in one month, three months and YTD basis, respectively.

 

Let’s have a look at the price movement for three important announcement dates and their per cent change as compared to the previous close.

 

  • On the date of release of 3Q FY 2020 results update (on 6 April 2020), the stock of the Company increased by 9.49 per cent.
  • On the following two days, the price of the stock slipped by 0.67 per cent (07 April) and 1.73 per cent (08 April) respectively. On 7 April 2020, the company presentation was released entailing the initiation of capital raising, and COVID-19 related risk. On 8 April 2020, MP1 announced the completion of the capital-raising process.
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