Megaport shares dive after disappointing third quarter trading update
It’s been a tough couple of days for mega-rich chairman and founder Bevan Slattery after shares in the tech services firm dived following reports revenue growth has stalled.
Business
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Tech services firm Megaport suffered a second consecutive day of substantial losses Friday on the ASX following a disappointing third quarter trading update.
Shares in the Brisbane-based telecommunications and IT infrastructure company shed nearly 10 per cent of their value to close at $9.04, making it one of the S&P/ASX 200’s worst-performing stocks for a second straight day.
In earlier trade it had sunk as low as $8.58.
That followed a 22 per cent plunge on Thursday after Megaport reported its revenue growth remained stalled in the March quarter. The shares have fallen more than 47 per cent since the start of the year.
The latest setback for Megaport follows the disposal of three million shares by multi-millionaire founder and chairman Bevan Slattery in mid-March to finance “ongoing investment opportunities’’.
He pocketed $39.2m from the sale, which sent the stock down more than 8 per cent on the day.
Mr Slattery retains a 5.1 per cent stake in Megaport and vowed he would make no further selldowns in the next six months. This most recent share dive translates into a $32m loss for him on paper.
The company reported monthly recurring revenue of $9.5m this week. Factoring out the impact of currency movements, that represented growth of just 6 per cent, far lower than market expectations and well shy of the 11 per cent seen in the first quarter.
Despite the slump, several analysts said Friday they continue to be bullish on prospects for the company, which has a market capitalisation of $1.58bn.
“We remain positive on the medium- to long-term opportunity for Megaport,’’ said UBS analyst Tim Plumbe, who retained a “buy’’ rating on the stock but cut his price target by 9.4 per cent to $19.70.
Mr Plumbe, who described this week’s sell-off as an “over-reaction,’’ said Megaport was set to benefit from an array of factors. These included structural tailwinds from the ongoing shift to cloud services, high-quality products, first-mover advantage, strategic partnerships and significant investment over the past 12 months.
“That said, it is hard to disagree that some of the accelerators to growth are taking longer than anticipated to come through, which in our view pushes out the earnings potential (rather than reducing it),’’ he wrote in a client note.
“We continue to like the long-term structural thematic and growth opportunity and view valuation as attractive at current levels, although recognise that investors may want to see momentum accelerate first before turning more positive.’’
CITI analysts offered a similar view, saying that they “continue to see Megaport as a beneficiary of the trend towards multi-cloud and distributed compute and see a long run-way of growth’’.
But they cut their price target more harshly than UBS, slicing it by 14 per cent to $16.60.
Megaport, which floated in late 2015, has racked up enormous net losses over the past four years, including $55m of red ink in the last financial year.
Originally published as Megaport shares dive after disappointing third quarter trading update
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