End of lock-up period sparks sales at Darktrace

On the day the lock-up ended private equity firm Vitruvian Investment sold 11m shares worth approximately £63.8m through a secondary placement. Then, between 8 and 10 November, director Vanessa Colomar sold shares worth £9.23m.

Darktrace, which listed in April, is a poster child of the much-maligned UK tech industry. The cyber security company uses AI technology to prevent damage once a computer system has been breached. The AI is designed to be self-learning and is needed because hackers are increasingly using AI themselves. 

Revenue growth has been impressive but because of high R&D and administrative expenses, the $281m of sales it made in the year to June 2021 bubbled down to an operating loss of $38.5m. Broker Peel Hunt believes there is “a disconnect” between its valuation and the company’s ability to grow. If it is correct, these share sales may be well-timed. 

Peel Hunt moved Darktrace’s target price to 473p at the end of October, when the previous week’s closing price was 945p a share. Its justification was that the market size for its Network Detection Response product is just $1.2bn (£875m) according to Gartner (a technology market forecaster) and will only rise to $6.5bn by 2025. Barriers to entry to the market are low and Peel Hunt thinks Darktrace’s low customer review score means it is unlikely to capture the whole market.    

Chairman Gordon Hurst’s purchase of £149,125-worth of shares last week shows there is still some confidence in the business from insiders, though. The hope will be that the company’s high R&D spend does eventually manifest in a higher-quality product that captures significant market share.