Interactive Investor

Another amazing day for this star IPO of 2021

15th July 2021 15:50

Graeme Evans from interactive investor

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This cybersecurity firm continues to deliver for its IPO investors. We examine the odds of further gains. 

 

In a crowded year for IPOs, cybersecurity firm Darktrace (LSE:DARK) showed today why it has been among the best performing as its shares extended the rally since their April debut to 150%.

The Artificial Intelligence-focused company's maiden update went further than the City's lofty expectations by outperforming guidance for the June financial year and then raising hopes for 2022.

Shares were up as much as 15% at 664p in an otherwise weak market, after analysts at Berenberg and Jefferies upped their target prices to 750p and 700p respectively.

Berenberg removed its new company discount and noted that Darktrace still only traded on 14 times forward sales, compared with growth peers on about 20 times.

Valuations in the cybersecurity sector were further highlighted today when FTSE 100-listed software company Avast confirmed that it had a received a takeover approach from Arizona-based NortonLifeLock Inc (NASDAQ:NLOK).

No price tag has been mentioned, but Avast (LSE:AVST)shares today surged 17% to 592p for a market capitalisation of just above £6 billion.

The Czech Republic-based security software business listed on the London market in 2018 and has been one of the flagbearers for the tech sector since winning a place in the FTSE 100 last year.

The company claims to prevent over one billion malware security attacks every month, with demand triggered by working-from-home in the early days of the pandemic helping shares as high as 600p in August. They were 445p in May, on about 20 times earnings for 2022.

Cambridge-based Darktrace's technology protects over 5,600 customers from threats including ransomware and cloud and SaaS attacks.

It applies self-learning artificial intelligence to enable machines to understand the business in order to autonomously defend it.

Today's trading update revealed it grew its customer base by 42% year-on-year for annualised recurring revenues of at least $340 million (£245 million) at the end of June, a rise of 44%.

The figure is expected to grow to at least $354 million (£255.6 million) as Darktrace increased its expectations for the 2022 year from the guidance presented at the time of the IPO.

Berenberg's note today said: “While we have seen positivity from other cybersecurity peers, upping guidance only a few weeks into the current fiscal year is a strong demonstration of management’s confidence.”

Jefferies applauded the management's focus on revenues growth as the best way to drive long-term shareholder value. It has narrowed its sector discount from 20% to 10% and said it expects this to further unwind as the company delivers on expectations.

The broker added: “The risk to our price target and rating is an unexpected dip in sales productivity, but with firm end-market demand, we see little reason for this to occur.”

Darktrace joined the stock market at the end of April, with its opening price of 250p and valuation of £1.7 billion much lower than originally hoped for after the poor performance of the Deliveroo IPO a month earlier.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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