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Dhaka Tribune

Megaport (ASX: MP1) shares down 16% - old story, investors got too excited

As ever, we remind of the old stock market phrase, buy the rumour sell the fact.

 

Update : 26 Oct 2023, 01:30 PM

Megaport (ASX: MP1) shares are down 16% on the day. MG1 share fell on the publication of the actual fiscal numbers. Which are good, very good in fact. Megaport really has turned the corner, is cash flow positive and so, as we’ve remarked before, is unlikely to require more capital.

No, we did say this about Megaport: “Megaport (ASX: MP1) shares are up another 18% on their announcement of their results. These came in at the top end of their own, only recently updated, predictions of what they would be. So, the turnaround seems to be working. But there's one line in there which we think most important - that they are now cashflow positive. This removes, barring strategic deals and the like, the need for further dilutive share issues. That removes a dampening pressure on the MP1 share price.”

In fact we’ve been repeating the point about Megaport and MP1 shares for some time now. The company’s doing great. So, why the fall when the actual full results come out?

Megaport share price from Google Finance

Those full results are good: “Total revenue for the quarter was $46.5M, up $2.2M or 5% compared to 4Q FY23. Megaport exited 1Q FY24 with record Annual Recurring Revenue (ARR) 4 of $189.8M in September 2023, up $11.2M or 6% QoQ. Excluding the impact of foreign exchange tailwinds from a weakening Australian dollar, underlying ARR grew $5.2M or 3% in the quarter. Megaport delivered record EBITDA 1 of $15.0M for 1Q FY24, up $14.0M compared to 1Q FY23, and up $3.2M or 27% compared to Normalised EBITDA

1 of $11.8M in 4Q FY23. Cash Flow from Operating Activities was an inflow of $10.7M in 1Q FY24, an increase of $4.3M or 67% QoQ. Cash balance at 30 September 2023 increased to $55.2M, up $6.7M or 14% QoQ. Megaport generated positive Net Cash Flow of $5.6M in 1Q FY24, up $3.3M or 143% compared to 4Q FY23. Net Cash increased by 17% to $38.9M at quarter end.”

That’s all great. So, again, why the MP1 share price decline? The news reports don’t quite give the reason why. Our suggestion is simply that investors were too hopeful. We can see the share price rise above as we approach the results announcement. Too much hope was built into that about what would be announced. Or, to put this the other way, as so often in stock markets it’s buy the rumour and sell the fact. We all knew that Megaport results were going to be good. Therefore the stock got bid up on that knowledge and hope. Reality arrives and much of it is confirmed but that hope value obviously disappears.

Shares often do rise in anticipation of good results then fall on their actual arrival. As here.

 

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