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Megaport share price slumps 5% despite takeover speculation

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The Megaport Ltd (ASX: MP1) share price is in the red by 5% right now. It has lost some of the ground it had recovered over the past week.

Megaport isn’t the only one that’s down. The S&P/ASX 200 Index (ASX: XJO) is currently down by 1.1%. Ouch. But, Megaport shares are indeed down harder.

The S&P/ASX All Technology Index (ASX: XTX) is down a lot further than the broad index. It has fallen 3.75%. Examples include the Xero Limited (ASX: XRO) share price being down 5.6% and the REA Group Limited (ASX: REA) share price being down 3.5%.

Internationally, the US tech share sector suffered a bit of a sell-off overnight. ASX tech shares often follow on from any strong movements in the US tech sector.

Is Megaport a takeover target?

After a heavy decline in the Megaport share price, there is speculation that the cloud connections infrastructure business may be a takeover target.

According to reporting by the Australian Financial Review, Megaport has been talking with investment banks about possible takeover “appetite”.

AFR sources said that Megaport could choose one of the investment banks to lead its takeover defence, but this could also lead to generating some takeover interest.

There are reportedly a number of different types of potential buyers including private equity firms, infrastructure funds and global trade players that could be looking at the Australian market for opportunities.

The Megaport share price has been hit particularly hard – it’s down around 70% in 2022. This means it’s now a lot cheaper than it was at the start of the year.

The AFR noted that “analysts reckon Megaport’s likely to be receiving some attention from tyrekickers, attracted to its unique software.”

Brokers are still largely bullish on the company’s prospects.

Current price targets on the Megaport share price

Citi was one of the latest brokers to confirm a bullish price target (from the current level). Citi’s price target – which is where it thinks the share price will be in 12 months – is $12.30, which would be a rise of around 120%.

The UBS price target is $19.70. That implies a whopping potential rise of around 250%. It likes the longer-term outlook, including the tailwind of more businesses going online with their computing infrastructure.

Morgans has a price target of $10.65, which implies a rise of around 90%, though the actual rating was hold.

Ord Minnett thinks the business is close to fair value, with a price target of $5.50. It thinks the business needs to focus on revenue growth and costs.

Latest update

Business updates can have a material impact on the Megaport share price.

In the FY22 third quarter, Megaport saw revenue of $27.9 million, an increase of 5% quarter on quarter. It ended the quarter with 2,541 customers, an increase of 4% quarter on year. Its total port numbers increased by 6% quarter on quarter.

Monthly recurring revenue (MRR) increased by 3% quarter on quarter to $9.5 million.

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