ASX up; miners lead blue chips to small gain

The sharp sell-off in Megaport shares on Wednesday was overplayed, offering investors an attractive entry point, Morningstar analysts say.

The data centre connectivity company’s shares shed 15 per cent on Wednesday in response to December-quarter metrics released by the business that showed mixed performance through the first half of the financial year. The decline pushed the shares to $15.32 on Wednesday, below Morningstar’s $16 fair value target.

The share price tumble also reflected a shift away from risk assets worldwide that hit tech shares particularly hard, given the rise in government bond yields as investors begin to price in forecast interest rate increases this year.

“We didn’t see any worrisome signs that make us question the firm’s opportunity or continued growth momentum,” Morningstar analysts said in a Thursday research note following the dip in Megaport’s shares.

Growth in only a few metrics showed signs of slowing, while other key indicators including the total number of customers and services posted healthy growth.

“We think Megaport’s stock presumes excellent growth well into the future. In our view, the most important outcomes for Megaport are that it continues adding customers at a good clip; that its customers continue to use more services; and that pricing does not suffer as it adds customers,” Morningstar analysts said in a Thursday note.

Megaport is one of the largest tech companies within the S&P/ASX 200 with a market value of $2.4 billion, following a powerful run through the pandemic.

The shares have jumped more than 30 per cent in the past two calendar years, as investors rushed to tech shares through the COVID-19 tumult, but have dropped by 17 per cent since the start of the year after Wednesday’s decline.

“These are not results that lead us to question the strength in Megaport’s business, and they’re very consistent with the occasionally choppy trajectory that results have taken while rising in the past few years,” Morningstar analysts said.