Tthe prize for this year’s most undervalued flotation goes to Darktrace. The Cambridge-based cybersecurity company moved 250p in April. Price now: an astonishing 731 pages. How does it happen? How does a valuation of £ 1.7 billion become £ 5 billion in five months?
Well, the company has done its part by delivering trade numbers that it said it would do, plus a little more, which clearly helps the mood. The new news in Wednesday’s first set of full-year figures was not the pounding headline loss of $ 149 million (£ 108 million). This was the second upgrade after entering revenue forecasts for the coming year.
But the upturn in revenue forecasts is only a small part of the answer to the undervaluation. At the heart of it seems to have been Darktrace’s desperation to get a listing as a way to show independence from Mike Lynch, the Autonomy founder (and still 16% shareholder in Darktrace with his wife) who is fighting for extradition to the US on allegations of fraud. For public company status, it was prepared to accept a substantial price discount.
And the other contributing factor was Deliveroo’s floatflop last month. It seems bizarre that investors would associate a technology company that uses artificial intelligence to detect cyberbullying (Darktrace) with someone who runs software to organize couriers on bicycles (Deliveroo), but sometimes the city is wonderfully unsophisticated. Everything is lumped in a big “technical” bucket.
The net result is a big profit for the investors who bought on the float and the theoretical losers – the old shareholder – probably do not feel too sore because they only sold small shares of their holdings. But the traditional listing process, overseen by fantastically paid city advisers who are probably practiced in the fine art of judging investor demand, looks even more tedious than usual.
Not all purchases are the same, Chancellor
Still Rishi Sunak will be happy if Darktrace also shows that the UK market is not populated by Luddite investors. Marketing the UK as a technical hub is one of the Chancellor’s obsessions, even for (stupidly) agreeing to offer a few ra-ra words to promote Deliveroos’ float.
But Sunak asked another question earlier this week when asked about private equity buying prices for listed companies in the UK. “I would see it as a sign of confidence in Britain. That is good news for our economy, he replied.
That answer is depressingly banal. Yes, the UK obviously has to welcome foreign investment, but the current buyout frenzy raises questions Sunak avoided.
Is it really good that British companies are seen as sitting ducks by American private equity companies? And are British boards lying? Does the Treasury not see any revenue risks in British companies that are loaded with cheap debts that can be offset against corporation tax? Would Sunak really be relaxed if, for example, BT, a company we trust to build our high-fiber broadband network, was the next target?
It was the same perverted political determination to see each takeover as “a vote of confidence in Britain” that led Theresa May’s government in its post-Brexit 2016 confusion to bless the acquisition of British technology pioneer Arm Holding of SoftBank of Japan. Now SoftBank hopes to be able to sell to an American buyer, which is causing anxiety in the UK and a wish that Arm was still independent and quoted here.
None of this is to say that all purchases should be opposed. Some provide clear added value. But in a time of cheap money, the acquisition game seems hopelessly skewed in favor of private equity, which was never a political ambition. You would hope that point can get a nod of recognition. Come on, Chancellor, you’re not working for a hedge fund these days.
Insignificant ticket price from the restaurant group
“Since we opened our trading performance has been very strong,” he says Restaurant group, owner of Wagamama and Frankie & Benny’s. Well, yes, it is difficult to argue with a 21% increase in comparable sales compared to pre-pandemic levels in 2019.
But the details behind the sales increase are the interesting bit. This is not the case with more diners. Rather, fewer people spend more – for example, more alcohol. It seems to be related to the trend from home: eating early in the evening has become more popular.
From the restaurant group’s point of view, all extra income is obviously welcome. It was on that basis that the group said that trade “supports” an increase in likely profits this year. But you can also see why shares fell by 10%: if fewer people come in through the doors, the recovery feels fragile.