This temporarily overshadowed news after hours on Friday that the company will be promoted to the FTSE 100, where it will replace supermarket group Morrisons when its takeover is completed.
Darktrace, which was added to the FTSE 250 after listing in May, was given a price target of 473p by Peel Hunt as the broker started coverage of the cybersecurity group.
First of all, it was noted that Darktrace’s primary products are in the Network Detection and Response (NDR) category, where software detects anomalies in a business’s network in order to stop malicious activity. This market, according to Gartner estimates, will be around US$1.2bn in 2021 and enjoy compound average growth of 18% through 2025.
The broker believes that once this market matures, NDR will have 33% market penetration of all relevant businesses, which implies an NDR market size of US$6.5bn.
Darktrace is one of the largest players in the space if not the largest, analyst Oyvind Bjerke said, but barriers to entry are low and there are at least 25 competitors, several of which are well funded.
The analyst highlighted that Darktrace has low customer review scores compared to its main peers.
“Speaking with its customers, it appears Darktrace’s strong marketing engine has been a cause of some controversy, as many felt there was a gap between the promise and reality.
“We are also concerned that the company could lose out to the competition – both on product and on talent – due to its underinvestment in R&D. However, we still believe that Darktrace can achieve a 20% market share in the long run.
“This is not uncommon in B2B software when a company offers good sales and marketing, even when the product is not superior.”
Bjerke’s target price was based on discounted cash flow methodology, based on an average of bull, bear and base case scenarios due to the “significant uncertainty” in the fairly nascent NDR market.