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Today's Markets: Hut Group's weak defence, Darktrace thrives, Pod Point plans IPO & more

Shares in London's main indices remain rangebound
Today's Markets: Hut Group's weak defence, Darktrace thrives, Pod Point plans IPO & more

 

  • Hut Group capital markets day fails to assuage concerns
  • Harry and Meghan enter ESG arena
  • Darktrace trading remains buoyant

THG boss makes expensive faux pas

The Hut Group’s (THG) chief executive Matthew Moulding says he “knows of no notifiable reason” for yesterday’s 35 per cent slump in his company’s share price. That’s interesting, because everyone else knows the reason: THG shares fell so significantly because Moulding told his investors that the online retailer was under a “short attack” from hedge funds betting against its shares.

At this stage, there is little evidence that those claims are true. The company is outside of the top 50 most shorted stocks in the UK with only one disclosed short seller who has a position equivalent to just over 1 per cent of the shares. By claiming his company’s shares are being shorted when they are not, Moulding might have written a self-fulfilling prophecy.

Investors were also left underwhelmed by the company’s expansion plans especially within the Ingenuity division and proposed spin out of the beauty business, as detailed during a capital markets day yesterday which failed to assuage investor fears. Indeed, analysts at Numis have turned bearish on the stock despite the broker being the book runner on Hut’s IPO last year.  

Read analyst Steve Clapham’s forensic analysis of Hut Group’s use of adjusted earnings in their results and why it raises questions. MB

Meghan and Harry raise the stakes for ESG 

The Duke and Duchess of Sussex have been appointed ‘impact partners’ at sustainable investing firm, Ethic, in a bid to encourage more young people to invest in responsible companies. Adding finance to their expanding portfolio of jobs since stepping down from royal duties, the couple hope that they will help democratise investing by encouraging people to invest in line with personal values.

 “You already have the younger generation voting with their dollars and their pounds, you know, all over the world when it comes to brands they select and choose from,” Harry said in an interview with New York Times’ Dealbook, suggesting it was a natural extension to do the same with investments.

“We believe it’s time for more people to have a seat at the table when decisions are made that impact everyone,” the couple said in a statement on their Archewell website. “We want to rethink the nature of investing to help solve the global issues we all face.” 

Ethic, which was founded in 2015 and has $1.3bn under management, says it creates personalised portfolios “to help investors transition money toward companies that treat people and the planet with respect.” MB

Darktrace maintains strong revenue growth

Cyber security firm Darktrace (DARK) has followed its strong set of primary financial results with another encouraging trading update. In the first quarter of the 2022 financial year the company added a further 370 customers taking the total up to 5975 - up 43 per cent year-on-year. These new customers brought in a total of $24m of annual recurring revenue (ARR), taking total ARR at 30 September up to $382m - up 46 per cent on the previous year. 

It’s good to see ARR continuing to grow at a faster rate than customer numbers - the company isn’t sacrificing quality of contract for high customer numbers. And while investors might be a little disappointed that the growth rate has slowed since the lofty numbers reported at the IPO, it’s hardly surprising as the company matures. Covid-demand also flattered last year’s numbers. 

But top line growth is always going to be Darktrace’s most attractive figure. The real question is whether the company can turn this growth into strong profits and cash flow. Management says gross margins remain at the level they did in previous years (which is around 90 per cent), but costs further down the income statement (especially the cost of sales) are the most significant. MB

Read our full overview from The Analyst here. 

Pod Point plans IPO 

The recent petrol shortage and images of closed forecourts up and down the UK offers the perfect back drop to Pod Point’s recent announcement of its intention to float. Pod Point is an electric vehicle infrastructure business that installs chargers at homes, workplaces and at en-route locations. The aim of the business is “to charge vehicles while its customers are busy”, said CEO Erik Fairburn.

It is currently the largest home charging provider in the UK with 50-60 per cent of the market. It has 10-20 per cent of the workplace market which puts it in the second place. The last two years has seen a step change in its revenue growth. Its revenue grew 179 per cent from £11.9m in 2018 to £33.1m in 2020. In the first six months of this year, it generated £26.5m in sales, meaning it is on track to surpass its numbers from last year.

Economies of scale have improved its margin. Gross profit increased 450 per cent between 2018 and 2020 to £8.2m and it already has £7.0m this year. It is still yet to generate an operating profit though and has an operating loss of £6.05m so far this year.  

An issue with electric vehicles is that if everyone charges at the same time it can puts a lot of pressure on the grid, this is why Fairburn is excited about Pod Point’s ‘load management’ technology. “We get constant feedback from the chargers meaning we can stagger the times the cars are charged. Once we hit a critical mass, we become an important part of the grid and have an important responsibility,” he said.

The company plans to have a free float of at least 25 per cent while the majority stakeholder EDF would retain a stake of over 50 per cent. AS