Following earnings results, the team at Ord Minnett is projecting big upside for Megaport Ltd (ASX: MP1).
Megaport provides on-demand data and network interconnection services across multiple continents.
It released full-year results on August 20.
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Results exceeded expectations
In yesterday's report, Ord Minnett said Megaport's FY26 earnings and FY27 guidance exceeded consensus estimates.
The company also announced three contract wins, together valued at $506 million.
These contracts will deliver annual recurring revenue of $129 million and start contributing in FY27.
For FY26, total revenues rose 37% to $312 million, in-line with consensus of $313 million, and within the provided guidance range of $307-315 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 24% to $77 million, ahead of consensus at $72 million, and guidance of $64.5-75.5 million.
Guidance is for FY27 revenue of $620-$730 million (consensus: $619 million) and an EBITDA margin of 38-40%, which implies EBITDA in the range of $ 236- $ 292 million (consensus: $242 million).
Soft market reaction
Despite the positive results, Megaport shares actually fell significantly following the results.
Ord Minnett suggested this may have been influenced by several factors:
Some parts of the investment community had been expecting contract wins already, or more of a guidance uplift in guidance from GPU Pool monetisation.
We see guidance as prudent, and the EBITDA target is achievable purely on a conservative ramp-up of contracts without GPU Pool monetisation. EBITDA of over $300 million is possible with some GPU Pool monetisation on our analysis.
MP1 renegotiated two strategic contracts due to supply constraints. Despite this, the outcomes appear more favourable for MP1 given the alternative arrangements include providing higher-grade graphic processing units (GPU). This has increased total contract values in aggregate by US$87.1 million with no material change in aggregate annual recurring revenue or capex requirements.
Big upside remains for Megaport shares
The recent dip may have created a strong opportunity for value investors.
The team at Ord Minnett placed an accumulate rating and $22 price target on Megaport shares following results.
From yesterday's closing price, this indicates an upside potential of approximately 33%.
Our EBITDA estimates fall by 11.2% in FY27 on higher expenses but increase 22.6% in FY28 on higher revenues from contract wins. Our target price is revised to $22.We have an Accumulate recommendation. Catalysts for the shares include upgrades to FY27 guidance and more contract wins.
