What is the stock?
Megaport (MP1).

Source: ASX

How long have you held the stock?
We initially acquired Megaport in December 2017.

What do you like about it?

Megaport is changing the way the economics of consumption work for telecommunication services. By aligning the economics to consumption, Megaport is providing benefit to, not only its customers, but the broader stakeholders in its value chain.

How is it better than its competitors?

Generally, we invest in businesses that have a sustainable competitive advantage (SCA). Megaport sits in our nursery stocks and at present we believe Megaport currently exhibits a temporary Competitive Advantage. Our view is that, as the network grows, this should expand to a SCA. The value of the service increases with the number of services and pops connected. Further, Console Connect, Megaport’s biggest competitor, was split up and sold off, which means that Packet Fabric is the only real competitive threat. Packet Fabric does not have the network and/or software at a point where it’s able to compete yet, but we continue to watch it.

What do you like about its management?

Megaport has a long way to go and requires management to continue to execute hard and fast. So far, management has delivered well, and we believe it will continue to deliver. Our dealings with the management team have been positive, and Vincent English appears to be the right person to continue this momentum. Of course, having Bevan Slattery as a guiding force is a positive for us and he has proven, over time, to be an extremely strategic thinker in the industry.

What is your target price?

We do not have price targets. We buy or sell based on our expected risk adjusted relative return within the portfolio over our five-year investment horizon.

At what point would you sell it?

When the Internal Rate of Return falls below our threshold, which is the risk-free rate plus an equity risk premium. Other reasons to sell may be due to a significant, unexpected, change in the management team or a change to the business model.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

Megaport has been a strong performer since it listed and is up approximately 35% since we acquired it.

Where do you see the value?

Megaport’s value proposition differs depending on which stakeholder you are talking to. However, broadly, Megaport differentiates on both price and value. Megaport is extending the network reach of all the stakeholders, at a price that is equal to the current consumption economics, and at a fraction of the headache in terms of installation and maintenance. As MP1 becomes the ecosystem, it becomes less likely that someone will switch away, even if the unit economics are cheaper.

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