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FTSE 250 movers: Tullow gushes, Darktrace tumbles on BoA note

By Frank Prenesti

Date: Friday 26 May 2023

(Sharecast News) - Cybersecurity firm Darktrace tumbled on Friday after Bank of America Merrill Lynch initiated coverage of the stock with an 'underperform' rating and a "street-low" price target of 240p, which implies 18% downside potential.
BofA noted that the company primarily operates in the Network Detection & Response cybersecurity market but has been adding some capabilities in the Extended D&R (XDR) space.

"While revenue growth has been strong historically (48% in FY22) driven partly by its attractive interface, successful marketing and a highly effective salesforce, we expect growth to significantly decelerate (BofAe 18% compound annual growth rate of FY23-25e versus 23% cons) as: 1/ we expect much stronger competition in the next 12 months, 2/ weaker macro puts pressure on new wins as customers further consolidate providers, 3/ upsell potential remains unproven with limited success to date," it said.

The bank explained that in a weak macro environment, customers are often likely to buy additional solutions from existing providers rather than from new ones.

"This puts significant pressure on Darktrace as it relies primarily on new wins," it said.

ML also noted that the company's circa 105% net retention rate is significantly below peers, "and we believe this is due partly to limited upsell potential due to underinvestment".

The bank said it's around 3%/6% below consensus on revenue for FY24/25e, and around 4% and 14% below consensus on adjusted EBITDA for FY24/25e as it expects Darktrace to "materially step up on R&D to remain competitive as peers continue to invest more to constantly innovate and tackle evolving security threats".

Financial services company IntegraFin reported a "robust" first-half performance for its Transact platform on Friday, with net inflows of £1.6bn.

The FTSE 250 firm said although that was slightly lower than last year's figure of £2.7bn, it still represented over 6% of opening funds under direction (FUD) on an annualised basis.

Additionally, Transact platform client numbers reached a record high of 228,000, marking a 4% increase compared to the prior year.

Total group revenue for the six months ended 31 March totalled £66.5m - slightly down from the £67m it recorded in the same period last year.

The board put the decrease down to a 1% fall in Transact platform average daily funds under direction due to adverse market movements.

Despite that, underlying group profit before tax remained resilient at £29.4m - marginally lower than the prior year's figure of £32.4m.

IFRS profit before tax stood at £27.9m.

The company's earnings per share figures indicated a slight year-on-year decline, with underlying group earnings per share for the period coming in at 7.1p, down from 8p, while IFRS group earnings per share were 6.6p, a decrease from 7.7p.

IntegraFin also updated on the digitisation programme for the Transact platform, which was currently underway, and reportedly receiving positive feedback.

The recruitment of IT and software professionals was progressing, although at a slower pace than originally planned, due to a competitive market for such talent.

Recruitment efforts would continue into the 2024 financial year, but the board said the total planned additional headcount would not increase.

The company reiterated that the cost guidance it disclosed in December for both the 2023 and 2024 financial years remained unchanged.

IntegraFin declared a first interim dividend of 3.2p per share, matching the distribution it paid for the first half last year.

"I am pleased to report another solid performance, despite the six months presenting a challenging backdrop for UK consumers and businesses, with persistently high inflation, macroeconomic uncertainty and volatile asset markets," said group chief executive officer Alex Scott.

"The combination of the strength of the UK advisers we work with and the services provided by the Transact investment platform and the CURO adviser back office solution, ensured that we delivered a resilient performance.

"Overall, we remain focused on our aim to be the number one provider of software and services for clients and UK financial advisers."

Fast fashion retailer Asos has raised £75m from shareholders, it confirmed on Friday, as it looks to shore up its finances.

The placing, announced late on Thursday, will support plans by management to return the struggling business - which also owns the TopShop and Miss Selfridge brands - to sustainable profitability and cash generation in the second half.

Asos said that a key part of the turnaround programme - dubbed internally Driving Change - was "a robust and flexible balance sheet. This, in conjunction with new financing arrangements, provides financial flexibility and creates a stable based for Asos's continued execution of its strategy and future return to growth".

In common with many online businesses, Asos saw revenues surge during the pandemic. But demand slumped as lockdown restrictions eased and people returned to bricks and mortar shopping.

Trading has been further hit by stiff competition in the fast fashion sector, higher returns, supply chain issues and the cost of living crisis.

Earlier this month, Asos swung to an interim adjusted pre-tax loss of £87.4m from a profit of £14.8m a year previously, as revenues fell 8% to £1.8bn.

The online-only brand said that a total of 17,938,292 new ordinary shares had been placed, raising gross proceeds of around £75m. The placing was fully underwritten by three investors, two of whom - Aktieselskabet, the investment vehicle of Denmark's Bestseller, and Camelot Capital Partners - are its largest shareholders.

Tullow Oil shares gushed higher on news that Indian state-run oil exploration companies are in talks to buy a stake in the London-based firm's block in Kenya, Oil India Chairman Ranjit Rath said on Thursday.

Oil India, along with ONGC Videsh, the overseas investment arm of Oil and Natural Gas Corp, are talking to Tullow, Rath said, without elaborating on the size of a possible stake.

FTSE 250 - Risers

Tullow Oil (TLW) 26.16p 6.51%
Harbour Energy (HBR) 241.40p 3.65%
IP Group (IPO) 56.80p 2.90%
Kainos Group (KNOS) 1,269.00p 2.67%
Balanced Commercial Property Trust Limited (BCPT) 81.60p 2.13%
Softcat (SCT) 1,318.00p 1.70%
Intermediate Capital Group (ICP) 1,354.00p 1.50%
Hill and Smith (HILS) 1,452.00p 1.40%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 284.00p 1.25%
Tate & Lyle (TATE) 808.50p 1.13%

FTSE 250 - Fallers

Darktrace (DARK) 259.90p -10.99%
Dr. Martens (DOCS) 158.50p -5.09%
Helios Towers (HTWS) 90.35p -4.34%
Baltic Classifieds Group (BCG) 159.00p -3.28%
IntegraFin Holding (IHP) 268.60p -2.96%
Marshalls (MSLH) 290.80p -2.81%
ASOS (ASC) 407.10p -2.63%
Synthomer (SYNT) 99.85p -2.59%
WH Smith (SMWH) 1,541.00p -2.53%
Paragon Banking Group (PAG) 485.60p -2.49%


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