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Edited transcript

Michelle Lopez:

This is fresh of mind because we've just had a conversation with an expert network provider and it's Megaport. So Megaport is a ‘network as a service’ provider, rather than software as a service provider. Megaport is a very interesting company and one that we feel isn't properly understood yet.

We spent a lot of time trying to understand the industry and what they're trying to do here, and who are they trying to displace and where are they going to be in five years' time.

I think about the industry itself, you and I know and everyone knows, the level of data consumption as we work remotely, live remotely, just that huge consumption of data. There's a number of ways to play this. One of them is the physical data centre (DC) operator, which we have in our market, NEXTDC, as well. Very capital intensive, because they're building the infrastructure for this.

What Megaport does is the connectivity piece, and that industry, they're now in over 300 DCs globally, 23 countries. There's only one other player in the world that has got that depth and that's Equinix, which is a much more mature player in the US. What they're able to do, and this is a case of a very long-term vision here. It's capital-light, but they're in roll-out mode. So they're investing very heavily. And I think for the right reasons. So that's the industry.

When you look at the strategy at the moment, it's a land grab, so they need to be the first to market. There's three or four other players that are doing something similar. And I talk about 300, 360 connections. They're nowhere near that. So that gap is actually widening.

Then, I think about the management team. That's an interesting combination here because you've got the founder, which is Bevan Slattery. He's got an exceptional track record in the market, particularly in this industry. So, you've got the vision there. And then you've got Vincent, who is the CEO, and he has just executed impeccably. So again, strong alignment, co-founder has been selling down, but still owns a chunk of the business. I believe the CEO owns a million shares. So very well-aligned as well to the success of the story.

The financials is tricky because this business isn't currently generating profit. For us, it's very important to see a pathway to cash flow neutrality and then profitability. And it's our expectation that Megaport will get there next year, so 2021, to be cashflow neutral. The reason we're supporting them through this earlier stage is when you see ANZ, so Australia, New Zealand, which is the more mature part of their business and the margins that they're able to generate and the returns they are able to generate here, for us, it's a very clear investment case to continue to invest, to be able to get those levels of returns in other parts of the market.

So, we look at trajectory of margins, we look at when they will be cash-flow breakeven and positive, hopefully, following that. Then we look at the amount of cash that they've got. And again, this is a company that throughout this period, over the last six months, they actually raised capital to fund growth. Whereas, all the others were kind of raising capital to survive. So that's an interesting distinction. So that's the quality piece.