Cyber security firm Darktrace (DARK) continues to reel from a market sentiment backlash, falling 5% on Wednesday to 601.5p after UK private equity firm Vitruvian Partners sold 11 million shares in the FTSE 100 company in a placing.
The shares were sold at 580p each, a rough 8% discount to last night’s 632.5p, raising around £63.8 million for the venture capital firm and slashing its stake to just over 20.8 million shares, a fraction under 3%.
FREED FROM LOCK-IN
Investors had braced themselves for a raft of institutional stock sales this week after insiders, including Mike Lynch, the former Autonomy chief executive, were released from a 180-day lock-up, which expired on Wednesday, 3 November.
Darktrace had been one of the UK market’s hottest stocks this year, rallying to a record 985p in September and powering its way into the FTSE 100 last month. The company only joined the UK market in April, listing its shares at 250p for a £1.7 billion valuation, compared to a peak £7.5 billion market cap.
Darktrace had come under selling pressure in recent weeks after analysts at Peel Hunt sent a research note to clients that poured cold water on its lofty valuation.
‘There’s been a touch of Icarus about the experience of Darktrace since it listed in London at 250p in April 2021,’ said Russ Mould on Wednesday, investment director at AJ Bell.
Peel Hunt’s criticisms were the company’s rising R&D spend, low customer review scores compared to its main peers and, crucially, a narrow TAM, or total addressable market, which could crimp longer-run growth.
Peel Hunt slapped a 473p target price on the stock.
NO LAUGHING MATTER
‘Some observers scoffed at such an aggressively negative target at the time but they’re not scoffing now as one of the company’s largest shareholders gets set to sell a third of its stake following the end of their lock-up period,’ said AJ Bell’s Russ Mould.
The concern will be that other major shareholders will follow suit, piling further pressure on the share price and investors will need to decide if these are just teething pains or if there are genuine questions about the credibility of the company’s artificial intelligence-based technology.
‘Those who remain believers in the underlying story will probably be able to dismiss the recent volatility in Darktrace as noise for now, however, the longer the shares keep falling, the more difficult it will be to tune out,’ said Mould.
