Interactive Investor

Cybersecurity stock flies the flag for IPOs

15th September 2021 15:26

Graeme Evans from interactive investor

Darktrace shares have surged after the recently floated firm was upgraded by brokers.

AI cybersecurity firm Darktrace (LSE:DARK) continues to fly the flag for IPOs in 2021 after a second upgrade to forecasts since April's stock market debut sent shares up by another 12% today.

Darktrace's latest price of 714.5p compares with its debut 250p a share on 30 April.

Retail investors who got on board at the start of unconditional dealings on 6 May when the price stood at 320p are also sitting on a paper profit of more than 120%.

Today's latest surge comes after a positive response to maiden annual results, which included upgrades to 2022 guidance on both growth and margins.

Analysts at Jefferies and Berenberg think there's further to go for the shares after increasing their price targets to 850p and 900p respectively, particularly in light of the performance of US-listed security peers.

The IPO class of 2021 also includes Trustpilot Group (LSE:TRST), but the Copenhagen-based review site received a different response from investors today after publishing results for the first time.

This was despite Trustpilot upgrading guidance by forecasting a similar rate of second half revenues growth to the 22% achieved in today's interim results.

Bookings, which are seen as a strong lead indicator of future revenues growth, increased 28% in the half year but are expected to be slightly lower than H1 due to tougher comparisons with a year ago.

The group also reported a larger loss of $17.2 million (£12.4 million) for the period due to IPO costs and an increase in share-based compensation, sending shares down by 7% or 29.6p to 384.8p.

That price is still a decent premium on the IPO mark of 265p, which is the same level at which retail investors got the opportunity to buy shares a few days later on 26 March.

Today's caution towards the shares was not matched by analysts at Peel Hunt, with the broker moving its target price up to 470p from the 430p seen previously.

They praised “a good first set of results” and noted strong regional trends, particularly in North America where bookings growth of 18% is double the revenues growth of the period.

Trustpilot is already in the FTSE 250 index, where it will be joined from next week by Darktrace after the Cambridge-based company boosted its market value towards £5 billion.

Its technology now protects over 5,600 customers, a rise of 45% on a year earlier as Darktrace uses self-learning artificial intelligence to enable machines to understand threats such as ransomware and cloud and SaaS attacks.

Revenues in the year to June rose 41.3% and annualised recurring revenue lifted by 45.7%, with the headline figure also forecast to grow by between 35% and 37% in the current year compared with 27%-30% signalled earlier in 2021.

Underlying earnings jumped 233% to $29.7 million (£21.5 million) but the net loss widened to $149.6 million (£108 million) following a one-off increase in finance costs and as a result of the IPO and transition to equity compensation plan structures.

Jefferies said the decision to upgrade its target price to 900p from 820p reflected today's upgraded guidance and share price strength for Darktrace's US-listed security peer group.

It's also encouraged to see that R&D headcount has increased by 48% and that new "prevent" products - AI driven tools to mitigate risks and identify weaknesses - will start shipping to early adopters at the end of the calendar year.


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