Megaport Ltd (ASX: MP1) shares have been out of favour since the company reported record first-half results last week, but the analyst team at Macquarie think they've been seriously oversold.
The Macquarie team has had a look at the results, updated their modelling for Megaport shares, and come up with a very bullish outlook.
More on that later. Let's see what they reported last week.
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Recurring revenues looking strong
The "network as a service" company said in its ASX earnings report that annual recurring revenue increased 49% year on year to $338 million, while revenue for the half rose 26% to $134.9 million.
The company's EBITDA was $35.3 million, and it reported an underlying net loss of $3.3 million, excluding acquisition costs $15.8 million.
Megaport chief executive Michael Reid said regarding the result:
Our team delivered an outstanding first half performance, demonstrating the strength and resilience of the underlying business. Importantly, we achieved this while completing two strategic acquisitions and executing a successful capital raise. These initiatives extend our platform into adjacent markets and position Megaport for accelerated growth across Network, Compute, and AI.
Mr Reid said the company's global business continued to grow, "with the United States delivering exceptional momentum, pushing the Americas to 24% year on year annual recurring revenue growth''.
He added:
This performance was driven by rising net revenue retention and consistent new logo acquisition. We are also seeing strong adoption of our newer products, alongside a clear shift toward larger bandwidth commitments, more complex global routes, and longer-term contracts. Together, these trends demonstrate expanding wallet share and Megaport's growing strategic importance within our customers' infrastructure stack. Despite Foreign Exchange headwinds, the fundamentals of the business remain strong, positioning Megaport to deliver scale-able, capital-efficient growth across Network, Compute, and AI.
Megaport said it "increased all metrics across all regions" in the first half.
Shares 'too cheap'
Macquarie said the result was pretty strong across the board, with foreign exchange the only downside.
The team added that artificial intelligence was a positive for the company, noting that large language models were using Megaport's application programming interfaces.
Macquarie said in its research note to clients this week that with a strong set of results and North American annual recurring revenue growing at 24%, the shares were "too cheap".
Macquarie has a price target of $23.30 on Megaport shares, compared with the current price of $7.55, down 5.1% on the day.
Megaport was valued at $1.41 billion at the close of trade on Monday.
