Darktrace trading update prevents stock price drop
Darktrace (DARK) delivered a positive business update at the right time. For the six months ending Dec. 31, it saw a 39.6 percent increase in customer count and a 45 percent increase in annual recurring revenue (ARR). This encouraged management to raise the ARR forecast for FY2022 to 37-38.5%, from 35% previously.
Market sentiment turned to the cybersecurity sector late last year when Peel Hunt released a sell note. This was quickly followed by a stack of stocks being sold by Vitruvian Investments after the initial lock-up period ended after the IPO. This shook market confidence and the share price fell around 60% from October to the end of December.
Today’s forecast update avoided that narrative slightly, and the stock price jumped 18% at 10 a.m. this morning. Peel Hunt considers these results to be positive and has shifted Darktrace from a sale to a conservation as it has now approached its previous price target. But he says churn rates appear lower in times of high growth and, presumably, continues to believe that the low customer ratings he referred to in last year’s sales memo remain an issue.
The growth of ARR is gold dust for investors and the acceleration fueled by the digital pandemic has only increased the demand for stricter cybersecurity measures. For those who love British tech, this is something to hold onto. LIKE.
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Mark & Spencer (MKS) – This isn’t just a business update, it’s Marks and Spencer’s key Christmas business update on Thursday. Investors will seek the reinstatement of the dividend after management raised the earnings outlook for the full year to £ 500million from £ 300million to 350million in May.
Clearly there must have been a big improvement in the last quarter for such a big improvement in earnings forecasts – as late as August the forecast was only in the upper end of that range. Supply chain issues likely remain a theme, but not as bad as feared. In the latest update, MKS said profit before taxes and adjustments of £ 269.4million was up more than 50%, with food sales up 10% and excluding hospitality by 17%. We know the Ocado partnership is paying off and we’re looking for more in the Christmas Update.
As for stock prices, the recovery from the pandemic is over, with the stock rising 95% in the past 12 months, but it remains to be seen whether it can reach 2015-18 levels. Restoring the dividend would help. The restructuring is clearly paying off – the pandemic has allowed Marks to speed up a process that had taken far too long and which, in many ways, could have been a blessing for the company.
Tesco (TSCO) and Sainsbury’s (SBRY) – A big theme from retailers is that the supply chain probably wasn’t that bad, although it’s still a ‘thing’ and they won’t miss an opportunity to keep a lid on expectations . Lots of worries about supply chain issues, shortages etc. have likely been overstated to some extent, although we expect warnings about rising costs – labor, materials, transportation – to be a major theme for retailers in the coming months. Tesco was notable last year, however, for saying he was doing very well.
Against very difficult comparisons, it appears that supermarkets had a slightly weaker Christmas in 2021 than in 2020. However, the abrupt recalculation of consumers to stay in more and cancel restaurant reservations etc. again. Tesco seems to have experienced less decline in Christmas sales than its competitors: -0.9% for Tesco, -4.4% for Sainsbury’s.
In its half-year results in October, Tesco raised its guidance for adjusted operating profit for the full year to between £ 2.5 billion and £ 2.6 billion. Seeking some moderation in retail growth, but a much stronger recovery at Booker, as restaurants and events had a semblance of normalcy – although the Christmas business collapse may have have an impact on wholesale trade.
Meanwhile, Aldi’s price commitment this week indicates lower margin growth potential for the majors as they are required to stay in line. The problem they have today is that the price pressures are acute – the higher cost of commodities, raw materials, labor and transportation means supermarkets can hardly afford. a price war because that could inflate their margins. They have been doing good over the past couple of years in terms of sales as they have benefited from the pandemic – but with the headwinds of the pandemic turning into headwinds, there is already enormous pressure on prices from anyway. What supermarkets would like is to simply inflate prices with cost (or a little more), but the Aldis of the world make this impossible, leaving the options to a) cut costs and / or b) bear more margins. weak.