A successful company relies heavily on the executives and employees who run the business.
This is particularly important for a new business.
A start-up needs a great idea to penetrate the market. It needs to build revenue by growing its share of the market. It helps when the target market is also growing.
Good business entrepreneurs succeed in these areas.
Bevan Slattery is no stranger to building a good business
After earning his accounting degree, Slattery began working as a clerk at the city council in his home town of Rockhampton, Queensland. The most enjoyable part of the job was helping with the council’s IT Systems. He enrolled in a software course, believing the internet would be the next big thing.
Slattery paid $30,000 for his first business venture. He launched an ISP franchise from a shop front in Rockhampton. He quickly identified flaws in the business model and it went broke.
The next venture went better. Slattery and a school friend started a company that could provide searches that filtered out unwanted sites. By 1999, the pair sold out to a US firm for $500,000 and $6.5 million in shares. The dotcom crash reduced the value of the shares to $500,000 by the time they exited.
Then came an idea to lay cables to transport data. Slattery and another school friend started PIPE Networks with just $50,000. It nearly collapsed due to finance woes during the GFC but managed to hold on. In 2010, TPG Telecom bought Pipe for $373 million.
In the same year, Slattery identified the next opportunity as data centres. He founded a company from the idea and listed on the ASX as NEXTDC Ltd [ASX:NXT]. He also listed Asia Pacific Data Centre Group Ltd [ASX:AJD] in 2013 before selling out a year later.
During this time, Slattery identified another opportunity. The rapid take-up of cloud services and networks require connectivity.
Traditional Telcos provide connections in a fairly rigid manner. There’s a manual setup process that can take a week to several months. Pricing lacks flexibility and is locked in, with penalties for unwinding long-term contracts. Separate connections are often needed for different data centres and cloud service providers.
Slattery founded a new company in 2013 and listed it as Megaport Ltd [ASX:MP1] after raising $25 million in December 2015.
The company aims to be the global leader in providing elastic connection services. It’s a first mover in using software defined networking. Think of it as a virtual router.
It offers flexible pricing on a consumption basis. The service can be set up in less than a minute with no long-term contract. Connectivity is flexible and bandwidth is scalable on demand.
Megaport now has more than 1,200 customers connecting to over 400 data centres. It has partnered with the world’s biggest cloud service providers. These include Google, Amazon AWS, Microsoft Azure, IBM Cloud, Oracle Cloud, Alibaba Cloud and Salesforce.
Megaport is an example of an Aussie company leading the way
Let’s take a look at the daily chart over the last 18 months or so:
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The share price more than doubled after September 2017. It was a strong move for a company that’s yet to turn a profit.
The stock suffered during last October’s sell-off but showed relative strength by making a higher low in December. This is an important piece of charting analysis.
Megaport held up at a higher level in December when the broader market sank to lower levels. Stocks that put in a pattern like this are often among the first ones to break out strongly to the upside.
In the first half of the 2019 financial year, revenue grew by 72% to $15.2 million. But revenue is yet to cover operating expenses. Megaport reported a net loss of $16.6 million for the period.
The company held a healthy cash balance of $38.1 million at the end of 2018. A couple of capital raisings certainly helped.
A placement raised $27.8 million in July 2017. This was supplemented by another placement and share purchase plan for a total of $60 million in March last year.
Megaport tapped the market again in March this year. It raised $50 million via a placement at $4.00 per share. A share purchase plan raised another $10 million from eligible shareholders under similar terms.
The funds will be used for capital expenditure on new locations and capacity upgrades as well as internal development of new technology. Any surplus will be applied to working capital and the funding of operating costs.
The company is seeking to expand its global reach. Out of 465 data centres directly connected to Megaport equipment, 77 are in the Asia Pacific region, 114 are in Europe and 274 are in North America.
The chart shows the value of watching for a break above old tops.
The share price first hit a high of $4.56 in June last year. It then backed away after hitting resistance near the same level in February and March this year. After finally breaking through, the ensuing move was rather explosive.
The pattern of relative strength via a higher low in December was a key indicator.
Megaport is an example of an Aussie company leading the way in its chosen field. It’s enabling better connections for the increased global use of the cloud.
Chartist, Phil Anderson’s Time Trader
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