Ann: Global Update, page-36

Macquarie released a research note on MP1 today.

Key points
 MP1 announced 2Q FY22 results. Revenue growth in-line with estimates,
but margin improvement lagging our est. from switching to channel sales
 Improving margin outlook intact but a FY23 inflection; FY22 will be the
transitory year where operating leverage is offset by switch in sales strategy
 Lower target price to A$20/share (from A$24); retain Outperform rating

Event
• Review MP1 outlook factoring in 2Q FY22 disclosure. 1H results will be
released on 9th February 2022.

Impact
• Improving revenue growth on-track: 2Q revenue growth maintained its
growth momentum +42% y-o-y (1QFY22: 42%; 2Q FY21: 35%) which was 1%
below our estimates and in-line with consensus estimates. As highlighted in A
Mega port opportunity an improving revenue growth profile from a switch to
channel sales will be one of the key metrics for MP1. To date MVEs sold have
still been via MP1’s direct sales. Indirect sales channels with Cisco, VMware
and Aruba were launched/announced in the last quarter and will drive stronger
revenue growth in the coming quarters in our view.
• Slower margin improvement from evolving business model: EBITDA
margin improvement was lower than our estimates. This was driven by higher
staff costs as MP1 transitions from a direct sales driven business model to one
being focused on channel sales.
• Gap year: We adjust our forecasts delaying material margin improvement by a
year. Despite the large impact on our forecast earnings change this does not
change the trajectory of the margin improvement outlook for MP1 in our view,
but merely delays it by year.

Earnings and target price revision
• We lower our FY22-24 NPAT estimates by $24-29m. Our delayed margin
improvement forecasts have led to volatile percentage earnings changes as
MP1 transitions from loss to profit. We now forecast for earnings to turn
positive in FY24 (previously FY23). More valuation detail on pg 4.
• Lower target price to A$20 from A$24 per share based on DCF (unchanged).

Price catalyst
• 12-month price target: A$20.00 based on a DCF methodology.
• Catalyst: 1H FY22 results announcement on 9th February 2022.

Action and recommendation
• Retain Outperform. FY22 will be a year of transition as MP1 adjusts its
business strategy to focus on channel sales and its new MVE product. Nearterm cost increases have delayed margin uplift vs. our previous forecasts but
the underlying outlook remains unchanged. Near-term focus should be on
improving revenue growth. To that end our discussions with channel partners
and these latest quarterly results suggest that this is on track