Megaport Limited: Cash burn to cash earn

About the author:

Author name:

By Nick Harris

Job title:

Senior Analyst

Date posted:

13 July 2023, 7:00 AM

Sectors Covered:

Telecommunications, Technology

• Megaport Limited (ASX:MP1) has issued a guidance upgrade due to better than anticipated results in Q4FY23. This will also lead to a guidance upgrade in FY24, although we will have to wait a month or so before this occurs.
• More important is the fact that MP1 generated positive free cash flow in Q4FY23 (both before and after paying redundancy costs of $2.6m in Q4). 10 years after its foundation, MP1 is a global leader and is now generating ~$15m pa FCF (annualising our normalised estimate of Q4FY23 FCF).
• Becoming FCF positive is a huge milestone for MP1. It upgrades the business from a concept stock to a self-funding, cash generative business. The magnitude and speed of this turnaround should be praised. In FY22 MP1 burnt ~$60m of cash. Burn more than halved to ~$25m in FY23 but MP1 exited the year annualising $15m. We expect MP1 to remain FCF positive in FY24 but to invest some of that FCF into sales and marketing spend to re-stimulate revenue growth, in late FY24.
• Add retained; Price Target increased to (login to view).

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