Morgans note - rate as Add

Extracts from Morgans recent note where they rate MP1 as "Add". and a TP of $4.44

MP1 has released their Q2 FY19 result this morning and it's tracking in-line to slightly better than we had anticipated We do not publish quarterly forecasts but this was broadly in-line with our expectations. Annualised Recurring Revenue (ARR) or the revenue exit rate revenue was up 70% yoy and 14% on Q1 FY19. MP1 added A$336k of new ARR in the quarter versus adding $384k in Q1FY19 and $290k in Q4FY18.  We were expecting incremental revenue growth ($) to slow slightly in Q2 due to seasonality before accelerating in Q3 and Q4 due to natural growth in the business combined with progress from new sales staff hired in Q1FY19. This was another good result, especially in North America. It's dangerous to draw direct parallels between quarterly cash flow and the profit and loss statement (due to differing accounting treatment) however MP1 also include a revenue number in the quarterlies. We forecast 1H19 revenue of A$15m versus Q1+ Q2 revenue (not cash receipts) of A$15.2m. Costs look to be slightly lower than we forecast for the 1H19. The exit rate ARR is A$32.6m or A$16.3m on a 6 month basis and obviously this will continue to grow. We forecast A$17m revenue in 2H19 so are comfortable that our FY19 revenue forecast is achievable. FCF / cash burn for the quarter was -$11.1m (from -$10.5m in Q1FY19) and MP1 ended the period with $37.6m of cash. Quarterly snapshot / KPIs A couple of noteworthy items are that revenue per port continues to grow (now at a record of $812 per port per month). MP1 also added a record number of ports in this period. These two facts show us that MP1 continues to add value as existing customers are using more and more services and are paying MP1 more for the privilege. MP1 reiterated they are on-track to be installed in 300 Data Centres by June 2019. North America Earlier this month MP1 noted that their North American (NAM) annualised revenue had grow rapidly to A$12m. Our view has been and remains that for MP1 to succeed on a global basis they need to win in NAM and trading to-date signals they are tracking well. Recent recent by Synergy research indicates that NAM accounts for 40% of the major cloud and internet data centres. NAM in nearly 5x larger than the #2 region China which houses ~8% of major cloud and internet data centres. From there the remaining regions like Australia, Germany, the UK and Japan account for ~5%. Given the significance of NAM MP1's progress is there is pleasing. Impact to forecasts We do not expect to change anything following todays result but it does give us us greater confidence in our forecasts. MP1 will release their 1H19 result on Tuesday the 12th of February.