Shares in embattled network solutions provider Megaport (MP1) have surged more than 45% after the company upgraded its full-year earnings guidance in its latest quarterly update.

In a pre-trading market announcement on Friday morning, the company said it now expects its normalised earnings before interest, taxes, depreciation, and amortization (EBITDA) in full-year 2023 to be between $16 million and $18 million – roughly double the ‘market consensus’ of $9 million.

And in FY24 it expects normalised EBITDA of between $41 million and $46 million – up from $30 million previously forecast. 

Mp1 table

Shares were also supported by strong quarterly earnings, including a 14% quarter-on-quarter increase in monthly recurring revenue, which Megaport attributes to product repricing.

 

MP1 table

The company also revealed it had removed 50 roles across its organisation as part of a wider cost-out program aimed at improving cash flow for the as-yet unprofitable company.

Price spike follows sustained downturn


Megaport shares surged as much as 45% on Friday, although it wasn’t enough to offset the sustained share price decline of the past 18 months.

Even accounting for Friday’s surge, the company remains one of the most undervalued stocks in Morningstar’s coverage universe and is currently trading at an almost 60% discount to its fair value estimate of $13.00.

Since the start of 2022, Megaport’s share price has fallen almost 70%, driven down in part by shifting investor appetites, according to Morningstar analyst Matthew Dolgin.

“If you look at a basket of high-growth, cash-burning companies like Megaport, they were really in favour pre-2022 but last year that reversed and companies that were not profitable were really out of favour […] of those, Megaport was hit harder than most,” he says.

After the recent share price turmoil—and a suprise CEO resignation in March—Megaport's third-quarter earnings release offered investors "significant comfort" that the company is on the right track, according to Dolgin. 

"We had not been nearly as down on Megaport as the market was, but [interim CEO Bevan Slattery's] comments—and most notably his explicit guidance that EBITDA will come in significantly higher than market consensus in 2023 and 2024—exceeds even our bullish expectations," he says. 

"We've long cited Megaport's clear path to profitability as the biggest component behind our bullish outlook, but the steps the firm is taking to expedite that—both in raising prices and controlling costs—give us more comfort in our view. "

Megaport remains one of Australia’s most shorted stocks, with the percentage of short positions continuing to increase in recent weeks. Currently, Megaport is the second most shorted stock on the ASX.

Short sellers profit when a stock falls. They do this by borrowing stocks that they believe are overvalued, selling them, and buying them back later at a lower price.

The substantial short position has been attributed, in part, to concerns that the company would need to raise capital ahead of reaching profitability.

But with Megaport’s management now saying the company does not foresee any need to raise additional capital for the normal operation of its business, investor confidence may be flooding back to this former ASX tech darling.