Megaport (ASX: MP1) shares have jumped 40% today on the release of projections about future performance. Of course, those predictions, especially of the future, are difficult. But companies do as well as they can given circumstances. The basic background at Megaport is that the business has been in trouble for some time. Therefore strategic review, change how things are done, hope it all gets better. That may sound cynical but that is how things are done - and such reviews do, sometimes, actually turn a business around. Which is what Megaport is suggesting will indeed happen.
The investor presentation tells us that there's been a reduction in head count, a concentration of activities at head office and so on. All good things, possibly at least. We also rather like this line: “Market demand is still strong, we just need to better focus our resources with the right go-to-market motion and hire more Salespeople in the right areas with the right incentive plan” We like Dr. Seuss and don't normally expect to find him in corporate reports. But there's definitely a bit of “if we had some ham we could have ham and eggs for breakfast if we had some eggs” to that comment.
Megaport share price from ASX
However, the net effect of the reports today is this: “the Company now expects Normalised EBITDA to be materially above market consensus of $9M in FY23 and $30M in FY24.
The Company is expecting to report Normalised EBITDA in FY23 in the range of $16M to $18M, and Normalised EBITDA in FY24 in the range of $41M to $46M3.” So, yes, that's a substantial change in prospects and despite these being forecasts (that difficulty of predicting the future, recall) probably does merit a revaluation of the corporate stock. However, we think that the really important point is this: “With this improvement in financial performance and cash flow, and $48M cash at bank at the end of Q3FY23, the
Company does not foresee any need to raise additional capital for the normal operation of its business (other than for strategic or opportunistic reasons)” A dilutive share issue or capital raise isn't necessary. Sure, they might raise money if they can on good terms, or to buy someone else, but the business doesn't, in fact, need more capital right now.
We think that it's lifting that threat that really explains the price movement. The question that's left is how far will that take the MP1 share price?
