Investment Thesis:
- MP1 is a global Software Defined Network provider, focusing on cloud connectivity. As such, the Company is leveraged to the rapid growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and datacenter regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
- MP1 has a scale advantage over competitors. MP1 has over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take a number of years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
- Cash balance of $82.5m plus access to a $25m credit facility, management is confident in achieving positive FCF.
- Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.
- MP1 has reported attractive trends in LTV to CAC ratio and customer churn (declining churn will also drive LTV to CAC ratio higher).
- Management has a stronger focus on growing revenue and EBITDA margins rather than chasing growth at any cost.
Key Risks:
- High level of execution risk (especially with respect to development).
- Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
- Heavy reliance on third party partners (especially data centre providers and cloud service providers).
- Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
- Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).
Key Highlights:
- FY22 results summary. Group revenue was up +40% to $109.7m, driven by growth across regions with the North American market (NAM) delivering the largest growth at +49% YoY to $57.8m. American is MP1’s single biggest contributor to NAM and accounted for 51% of group revenues in June-22, with the majority of the contracts now denominated in U.S. dollars (USD). Monthly Recurring Revenue (MRR) of $10.7m at the end of June-22 was up +43% YoY suggests solid momentum going into FY23. Revenue performance by region: North America up +49% to $57.8m; Asia Pacific up +30% to $33.5m; and Europe up +33% to $18.4m.
- key operating metrics performance YoY – data centres up +3% to 787; Cloud On Ramps up +19% to 278; Ports up +24% to 9,545; Megaport Cloud Router (MCR) up +46% to 731; Megaport Virtual Edge (MVE) up +248% to 73; and Total Services up +26% to 27,383.
- Gross profit (profit after direct network cost and partner commissions) was up +62% to $68.3m, with GP margin improving +800bps to 62%. Direct network costs were up +8% YoY with 26 new data centres added to the network and capacity upgrades on intra-regional routes. Partner commissions were up +36% YoY, in line with revenue growth and expected to grow as Company builds momentum in the indirect sales channel. Normalised operating earnings (EBITDA) loss of $10.2m was +23% above FY21 loss of $13.3m, with margin improving from -17% to -9%. Operating expenses of $78.5m were up +42% YoY driven by investments in Scale Up and Scale Out projects. Management noted 4Q22 EBITDA was positive with the business starting to realise the benefits from operating leverage. The Company ended the year with cash and equivalents position of $82.5m, down from $136.3m in pcp. However, the Company remains well funded and has access to a $25m credit facility to provide additional flexibility.
- Tightening the belt and focusing on margins. Other key items of note from the results: There is a strong focus on growing revenue and EBITDA margins in FY23, which is a positive in the current environment where investors are questioning the ability of high growth companies to deliver margin and profit growth. The group exit EBITDA margin for 4Q22 was positive – Group 5%, APAC 64%, EMEA 45% and NAM 23%. Further, with the current cash and credit facility, management is confident in achieving positive FCF.
- Management provided good colour around customer churn, showing a significant drop in customer churn after 2 years. Overall, MP1 has a customer churn of approx. 7% p.a. and is expected to continue to decline.
- MP1 reported LTV (Lifetime Value) to CAC (Customer Acquisition Cost) ratio of 6.3x for FY22, which is below FY21 levels as MP1 invested in additional sales capabilities (indirect sales channel). Nonetheless this is an attractive LTV-CAC ratio, and, with a declining customer churn, management expects this ratio to trend higher going forward.
Company Description:
Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Investment Thesis:
- Relatively high barriers to entry, with a significant amount of funds deployed in R&D every year.
- Recent and upcoming divestments will streamline the business and provide increased focus to deliver shareholder returns.
- Recent product launches indicate solid sales momentum, with near-term product pipeline potentially providing further upside.
- Selective bolt-on acquisitions to supplement organic growth.
- Operating efficiency focuses to further support earnings growth.
- As the new management team improves Company culture, investors are less likely to ascribe a discount to the stock based on legacy issues.
Key Risks:
- Recently launched products fail to deliver sales growth as expected by the market.
- New product pipeline fails to yield “blockbuster” products or delays in bringing key products to market.
- R&D programs do not yield new long-term ideas.
- Increased competition (pricing pressure & innovative products) from new entrants or existing players.
- Value destructive M&A.
- Regulatory / litigation risks.
Key Highlights:
- FY22 outlook – Sandoz guidance upgraded. Assuming a continuing return to normal global healthcare systems, including prescription dynamics, and that no Sandostatin LAR generics enter in the U.S., management expects; Group sales to grow mid-single digits with Innovative Medicines (IM) sales growing mid-single-digits and Sandoz sales growing low-single-digit (vs prior forecast of being broadly in line with pcp), benefitting from return towards normal business dynamics with management anticipating solid base for growth starting FY23 driven by biosimilars (>15 biosimilar assets in pipeline), targeting $80bn originator sales in FY2030.
- Core operating income to grow mid-single digits with IM growing mid-to-high-single digits driven by good top-line momentum and continuation of productivity programs, and Sandoz being broadly in line with pcp (vs prior forecast of declining low-to-mid-single digit).
- Expenses to be broadly in line with pcp.
- Core tax rate of 17-17.5%.
- Organizational model simplified – SG&A savings estimate increased to ~$1.5bn fully embedded by FY24. Management continued to simplify the organization model by integrating operations unit synergies, simplifying M&S structure (non-customer-facing) and streamlining G&A functions, increasing estimates of SG&A savings to $1.5bn (onetime restructuring costs to be 1-1.2x of the annual structure savings), fully embedded by FY24 (FY22 savings impact to be minimal as savings will be offsetting higher energy cost and inflationary pressures), with savings contributing to achieving mid-to-long-term low 40% IM core margin guidance and helping pipeline progression.
- Capital management. The Company remained disciplined and shareholder focused in capital allocation, balancing investing in business through organic investments ($4.5bn in R&D + $0.5bn in capex) and value-creating bolt-ons ($0.9bn mainly for the Gyroscope acquisition), while returning capital to shareholders via growing annual dividend (paid $7.5bn in 1H22) and share buybacks of $5.6bn during the half, with $9.4bn still to be executed.
Company Description:
Novartis AG (NOVN) is an innovative healthcare company headquartered in Basel, Switzerland, with approximately 125,000 employees. In 2017, the Group reported net sales of US$49.1bn, while R&D throughout the Group amounted to approximately US$9.0bn. The Company sells its products in approximately 155 countries. The group has two segments which it reports on: (1) Innovative Medicines (Oncology / Pharmaceutical), and (2) Sandoz generics division.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Investment Thesis:
- The largest dedicated online grocery supermarket globally.
- Attractive end markets, with grocery the most defensive and often the largest retail category in most regions.
- Ability to monetise OCDO’s expertise and IP via licensing deals with commercial consumers.
- OCDO’s technology can be an enabler to traditional bricks and mortar supermarkets rather than a threat given it will allow these players to defend against the threat of Amazon.
- Ongoing focus on R&D and innovation (e.g., entry into adjacent markets).
- Announcements of additional commercial partners.
- Corporate activity – potential takeover target.
- Potential move into other areas of retailing (e.g., general merchandise) via partnerships.
Key Risks:
- Build out of new customer fulfilment centres (CFC) underperforms.
- The grocery segment is highly competitive with large established players and smaller technologically driven companies.
- Margin erosion due to pricing pressure from irrational competitors
- Ability to find talented professionals to lead the R&D / innovation program (given the Company is competing with the likes of Amazon, Apple & Google).
- New and improved competing technology which erodes OCDO’s IP competitive advantage.
- Regulatory / litigation risks.
Key Highlights:
- FY22 outlook. Management expects; Revenue: Ocado Retail growing low single digit reflecting the impact of the cost of living crisis in the UK on consumer behavior, UK Solutions & Logistics delivering fee growth of >30% reflecting the accelerated capacity build out in UK and cost recharges growing at least in line with Retail revenue growth as the company supports clients to build into the growing capacity, and International Solutions delivering OSP fee revenue growth of >100% with increase of live international CFCs from 4 to 12 and continued ramp in ISF volumes, and double digit growth in Kindred revenues from £10m in pcp.
- EBITDA: Ocado Retail delivering low single digit margin a result of slower sales growth, coupled with the impact of higher utility and fuel costs, UK Solutions & Logistics delivering +50% growth reflecting increased fees due to the increasing live capacity for clients and engineering costs growing slower relative to this new capacity and International Solutions remaining flat vs pcp with rising margin contribution as revenues growth is offset by increased investments in platform development and a minimum level of engineering cost required to support new CFCs in the early stages of ramp.
- Total capex of £800m (30% U.K. + 50% international + 20% technology) driven by accelerating roll out of OSP worldwide.
- Ocado Re: Imagined – transforming the economics of OSP. The Company unveiled new “game-changing” technology, Ocado Re:Imagined, underpinning the Ocado Smart Platform (OSP) to make it the fastest, most flexible, most sustainable and most cost-effective suite of solutions for operating online grocery, and helping improve economics materially by 30-40% reduction in labor cost in CFC, increasing UPH (mature site productivity) up from 200 to >300, decreasing total cost of MHE by >15%, decreasing time to install and test MHE by -50% to 5 months and increasing share of orders delivered in <4hrs from placing by >5x. OCOD announced it remains on track for delivery starting 2H23 and is experiencing strong partner response given the new series of automatic bots and lightweight grids will allow installation of new capacity at a much faster pace, in smaller buildings and with lower capex.
- Strong cash position – supports significant growth plans without additional financing. Following the end of 1H22, OCDO successfully raised gross liquidity of £878m via a £578m equity placing and a £300m revolving credit facility, bringing total liquidity to around £2bn, to provide the liquidity for capex, underpinning delivery of the committed and expected CFC programme for partners over the mid-term (on track to roll out 50 modules i.e. 10 sites at an average of 5 modules each per year in the coming 4-6 years, with ~80% of this build programme already ordered) without the need for any additional financing, post which the business is expected to become cash flow positive.
Company Description:
Ocado Group (OCDO) listed on the London Stock Exchange in July 2010 and has over 15 years of trading history. OCDO is a global leader in online grocery retailing with over 600,000 active customers. The Company’s key competitive advantage lies in the unique end-to-end operating solution for online grocery retail based on its proprietary technology and intellectual property (IP). The company has two key operating segments: (1) Retail (online grocery retailing); and (2) Ocado Solutions (licences out Company’s IP and technology to commercial partners globally).
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.