TThe award for the most undervalued show of the year goes to Darktrace. The Cambridge-based cybersecurity firm floated in April to 250p. Price now: an astonishing 731p. How is it going ? How does a valuation of £ 1.7bn become £ 5bn in five months?
Well, the company has done its part by delivering the trading numbers it had announced, plus a bit more, which clearly improves the mood. The news in Wednesday’s first set of annual figures was not the overall loss of $ 149million (£ 108million). This was the second post-float improvement in revenue guidance for the coming year.
But the tingle upward in revenue forecasts is only a small part of the answer to the undervaluation. At the heart of it all seems to have been Darktrace’s desperation to get a list as a way to demonstrate his independence from Mike Lynch, the founder of Autonomy (and still 16% shareholder of Darktrace with his wife) battling the extradition to the United States for fraud. For the status of public enterprise, it was ready to accept a strong price reduction.
And the other contributing factor was Deliveroo’s floating flop the month before. It seems bizarre that investors are pairing a tech company that uses artificial intelligence to detect cyber anomalies (Darktrace) with a company that runs software to organize bicycle couriers (Deliveroo), but sometimes the city is gloriously simplistic. Everything is gathered in a large “technological” bucket.
The net result is a big win for the investors who bought on the float, and the theoretical losers – the former shareholders – probably don’t feel too badly because they only sold a small portion of their holdings. But the traditional IPO process, overseen by superbly paid City advisers supposedly trained in judging investor demand, looks even dumber than usual.
Not all redemptions are created equal, chancellor
Still, Rishi Sunak will be delighted if Darktrace also shows that the UK market is not populated by Luddite investors. Promoting the UK as a tech hub is one of the Chancellor’s obsessions, even to the point of (stupidly) agreeing to come up with a few ra-ra words to promote the Deliveroo float.
But Sunak was addressing a different question earlier this week when asked about the private equity buying frenzy for UK listed companies. “I would take this as a sign of confidence in the UK. This is good news for our economy, ”he replied.
This answer is depressingly banal. Yes, the UK obviously needs to welcome foreign investment, but the current buyout frenzy raises questions that Sunak has dodged.
Is it really a good thing that UK companies are seen as sitting ducks by US private equity firms? And the British boards being stretched out? Does the Treasury see no danger to the income of UK companies burdened with cheap debt that can be offset by corporate tax? Would Sunak be really relaxed if, say, BT, a company we rely on to build our fast fiber broadband network, were the next target?
It is the same perverse political determination to see each takeover as ‘a vote of confidence in the UK’ that led Theresa May’s government, in its post-Brexit vote confusion in 2016, to bless the purchase. from British technology pioneer Arm Holdings by SoftBank of Japan. Now SoftBank is hoping to sell to an American buyer, causing angst in the UK and the wish that Arm is still independent and cited here.
None of this is to say that all redemptions should be opposed. Some clearly add value. But, in the age of cheap money, the takeover game seems hopelessly skewed in favor of private equity, which has never been a political ambition. You hope this point might get a nod of recognition. Come on, Chancellor, you don’t work for a hedge fund these days.
Non-substantial price of the restaurant group
“Since the reopening, our business performance has been very good,” says Restaurant Group, owner of Wagamama and Frankie & Benny’s. Well, yes, it’s hard to argue with a 21% increase in like-for-like sales from pre-pandemic levels in 2019.
But the detail behind the increased sales is most interesting. It is not a case of more guests. On the contrary, fewer people spend more – by adding more alcohol, for example. It seems to be related to the work from home trend: early evening eating has become more popular.
From the point of view of the Restaurant Group, any additional income is obviously welcome. It is on this basis that the group said the trade “supports” an increase in likely profits this year. But you can also see why stocks fell 10%: If fewer people walk through the doors, the recovery looks fragile.