Member Info for Lending

Oldgold - you are right about the valuation currently assigned to DT by the market. But there is also the concept of Intrinsic Value which economists have borrowed from science/engineering’s intrinsic and extrinsic properties. Basically it is the value that can be assigned to a company by analysing what money a company makes, and may make, now and in the future. it gives a handle on where the SP may be heading, but is, of course, far from certain. This is perhaps what CR888 is referring to, but an intrinsic value shouldn’t be a guess, but based upon sound logical and mathematical analysis. i

Bitcoin has a market value, but it’s intrinsic value is 0. If I did not believe DTs intrinsic value is was higher e market value I wouldn’t be lholding.

Directors? I think it is the management team, and not the directors, who issue RNSs and JS is not a director. However, the BOD have a fiduciary role to ensure management, on our behalf, act with integrity and that they do the right things - and do those things right - so they seem be failing in that duty.

Management, or the directors, selling at any time is never good news.

Bring out some seemingly good news first to negate the bad news?

I wonder to what extent the SP is affected by the £/$ exchange rate. Yes the earnings in $ will be negatively affected from lower UK earnings when expressed in $s - as that is the reporting currency. But the SP is in £s so when the $ earnings are converted back into £s, the earnings in £s could even increase because of the U S earnings. Just a thought.

Sales and marketing costs part of Gross Margin? I think not.

Bobocaca = if you look at the EBITDA margin it has grow from about 4% at IPO to 15% today on top of a 45%growth in revenues last year, and which are forecast to be 30-33% this year. DT also thinks that long term the EBIT ( operating profit) margin will be 25% implying an EBIITDA margin in excess of 30 %. They also expect the conversion of EBIDTA to Free cash, of 60% currently, to rise to be well in excess of 75% in future years. If this pans out like this we will get the growth we need to justify the current SP and its growth.

I prefer to consider free cash flows, rather than earnings, as it represents the money left over after all costs to run and maintain the business are taken into account and it is money that can can be “banked”. Earning includes depreciation and amortisation that are not cash items. So you can’t bank a profit. For this reason I prefer, for growth companies, to consider the progression of the price to Free cash flow ratio rather than the PE ratio.

Adel - Most companies start off loss making as money has to used to set up the business. So initially the Companies will have negative PE ratios. So when they first make a profit, as DT is now doing, the PE ratio will be high as the price will, to some extent, reflect the market’s view on how mush profit will be made in the future, but be cautious all the same. . So if the price is 100 now and the profit is now is 1, the PE at 100 would seem high. But if one’s expectation is that the profit will be 10 next year because revenue is growing fast and outstripping costs, the the forward PE next year would be 10, a much better proposition. In practice analysts try an figure how much money a company could make 5-10 years into the future.

So for established companies making money now and with a track record, and growing slowly, using the current PE ratio to value a company is useful. But for growth companies where most of the value will be generated in the future, a current PE ratio has little to no relevance.

I don’t know what the SP will do in the short term, but I have updated my DCF model incorporating the latest results and DT’s ideas on EBITDA, EBIT, and FCF margins , and their projections, and remain convinced that Mr Market is underestimating the potential of DT - albeit that there is uncertainty in any of these projections. But like betting on the horses - one has to study the form, look at the odds, place your bets and hope for the best so DYOR. To me the form and odds on DT still look good relative to alternatives I have been looking at.

Charles - I see you know about the sequence of numbers.

Not perfect, but a better assessment IMO from another Motley Fool hack.

https://www.fool.co.uk/2022/11/10/3-things-that-could-boost-the-darktrace-share-price/

Motley Fool hacks clearly do not know how to value early stage high growth companies. Quoting current PE ratios for high growth companies is plainly absurd.

They should read the YE2021 results and forward prognosis on expected revenue growth rates, EBITDA margin on revenues, free cash flow margin on EBITDTA and take a view as to where these could be heading in the future. DT gives a clue expecting the EBIT margin on revenues to be in the mid-20s in the longer term - when exactly is of course uncertain. If these forecasts turn out to be more or less achievable the PE ratio based upon present prices will fall dramatically.

Seems company chairmen don’t like being challenged.

https://www.thetimes.co.uk/article/relations-between-boards-and-investors-sour-97nj3zrbb

Abcam delisting from AIM and moving to the US, Pershing Square thinking of delisting from the FTSE100 to do the same….. DT getting in line?

Indeed, I think any challenge to the status quo by the owners is nothing but heathy and mostly sorely lacking. In my view the BOD and company management must be held accountable to the owners and justify the actions they take, or plan to take, on all major aspects of the business. Without the necessary challenge management will just do what they like and this extends to some charities like the National Trust.

Unfortunately as long as shareholders regard shares as numbers in cyber space, rather than a co-ownership in a real business, this challenge will continue to be weak. All this is not helped by the ever increasing share of the market by tracker funds.

The key message is about the £12m annual pay awards to the CEO and CFO. Interesting that ML is alleged to have referred to the PIRC who advise IIs on corporate governance issues including executive pay on which they are critical when excessive. PIRC main message, as far as I interpret it, is that shareholders should wake-up.

A quote from The Times.

“Darktrace is understood to have met shareholders including Lynch before Thursday’s annual meeting in London, where he is thought to have discussed the company’s growth share plan, which was behind the bumper pay award. Darktrace said its remuneration committee had written to major shareholders before the meeting “explaining the decisions made by the committee during the year and how it intended to operate the remuneration policy for the year ahead”.

It added: “The remuneration committee chair offered to hold meetings and calls with shareholders. The remuneration committee was comfortable that overall those shareholders that the remuneration committee engaged with were supportive of the Darktrace remuneration arrangements. The remuneration committee will seek to engage with those shareholders who did not support the vote on the remuneration report to understand their concerns.”

A spokesman for Lynch said: “Dr Lynch voted in line with Pirc [a proxy advisory group] shareholder guidance.””

Excellent Grottyface - thanks for sharing. It wii be interesting to see how they develop their AI offering outside the cyber security field as they have mentioned this intent several times.

Not sure about “they won't need to be concerned about competition”. Seems to me the competitive field is crowded and best technology does not always win.

‘Dark probably doing the right thing to be extra generous on shares to retain key people and employees …’

This is where I beg to differ. I don’t think it is the right thing to be over generous or even generous. In my view the right thing is to have incentives that are just sufficient to motivate and attract and retain the staff required - its all about getting the balance right in my view. And money is not necessarily the greatest motivator for scientific and technical staff as has been shown by many authoritative studies.

I am mindful of the many occasions where companies have got the balance completely wrong. Oracle, by way of example , offered shares to staff by way of an incentive program in 2000, for $3 per share but, to pay for this, they later had to buy shares back shares from the market at $18/per share costing 50% of the REVENUES - not earnings - for that year. Over generous incentives are not in the best interests of the owners!

I wonder how many of you voted? I voted against resolution 14, and a couple of others, as I am yet to be convinced that the policies are fully aligned with my interests as a co-owner.

We should remember: by buying a share in a company we become co-owners of company; it’s managers work for us; the BOD Is accountable to us; it’s cash belongs to us, and the business is our property. Seldom do the BOD or management act accordingly.

Positive thinking is good if focussed on the fundamentals IMHO. And the fundamentals of DT are still good even in this environment. Good progress is being made on the key metrics, especially the bottom line and the Free Cash, and the need for their offering is as strong, or stronger, than ever.

I think it was Peter Lynch, of the incredibly successful Magellan Fund who said “I don't think people understand there's 100% correlation with what happens to a company's earnings over several years and what happens to the stock price,” Patience, I think, Is what is the order of the day.

Hope all holders have voted/planning to vote on the AGM resolutions. In my view it is one of the few rights we have as shareholders so we should exercise this right. I am not in favour of some of the resolutions.