MegaPort Limited (MP1) – Conservative not concerned

Megaport Limited provides on-demand data and network interconnection services in Australia, New Zealand, Hong Kong, India, Singapore, Japan, the United States of America, Canada, Mexico, and Brazil, and Europe. It operates a Software Defined Network platform that enables customers to connect their network to other services, as well as agile networking. The company was founded in 2013 and is headquartered in Fortitude Valley, Australia.

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Megaport’s (MP1) 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 revenues of $620–730 million (consensus: $619 million), an EBITDA margin of 38–40% which implies EBITDA in the range of $236–292 million (consensus: $242 million), and FY27 capital expenditure (capex) guidance of $1.28–1.38 billion (consensus around $1.2 billion after including additional capex on the new contracts announced).

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We believe the soft reaction to the results may have been because:

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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.

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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.

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MP1 could move from net cash into net debt by the end of FY27, with net debt/EBITDA of 1x. In our view, this is not elevated. MP1 should have access to $1.7–1.8 billion of liquidity, including a recently negotiated $825 million debt facility, which is enough to fund potential cash capex of $1.2 billion and have spare capacity for another acquisition.

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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.

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