Megaport: Valuation Lowered to AUD 15 From AUD 17 on Transfer of Coverage; No-Moat Rating Maintained

We lower our fair value estimate for Megaport by 12% to AUD 15 per share following a transfer of coverage to a new analyst. We continue to believe that Megaport does not possess an economic moat. The decrease in our fair value estimate is driven by lower expected operating margins, partially offset by a lower weighted average cost of capital. We expect EBIT margins to expand to 32% by fiscal 2033 and use a WACC of 7.5%. We forecast revenue to grow at a 10-year CAGR of 18% over the next decade, primarily driven by growth in average annual recurring revenue, or ARR. We assign Megaport a Morningstar Uncertainty Rating of Very High and rate its Capital Allocation as Exemplary. At current prices, Megaport’s shares screen as materially undervalued.