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Many on this board have commented that it would have been better had DT listed in the US. An article in this week’s Economist reinforces this opinion.

“Tech firms perceive mainstream British asset managers as being somewhere between indifferent and hostile, prizing earnings today over the promise of growth tomorrow. Although tech stocks have endured a hammering everywhere recently, those listed in London have fared especially poorly. One vc investor, asked whether he would consider listing a promising British startup in London rather than on the New York Stock Exchange or on the Nasdaq, responds with laughter. Even as scale-up investors try to build a ladder for fledging firms to climb, says Ms Glover, “it is as if the top rungs have been removed”. “

I’m less negative about broker evaluations as the numbers they come up with are so sensitive to the assumptions they make on key metrics - and these are only after all their opinions on how the future unfolds.

Just to illustrate the sensitivity of one key ingredient to valuation - revenue growth rate.

It the current $400m annual revenue grows at the current rate of 50% for 10yrs it will be $23billion in ten years time.I wouldn’t bet that this happening.

However if this 50% rate decreases by 5 percentage points each year ( 50,45,40…etc) the revenue will “only” be $4.3 billion after 10 years.

Then if you combine these revenue growth projections with a view to how the EBITDA margin will grow - and the ensuing free cash flows - widely different valuations are possible with relatively small changes in basic assumptions. So take your pick and make your choice.

In my view the only opinion that matters is one’s own. Mine is that an intrinsic value of 1000p+ is a credible possibility and for this reason I remain invested with a long term (5yr +) outlook. If things change from my present perception, I will reevaluate.

However, what will happen the the SP in the short to medium term I haven’t a clue as Mr Market is a funny - or not- old guy.

Hi JayneC - glad to see you are still in the land of the living and hope your investments are at least maintaining an assemblage of normality in this crazy - crazy world. But this too will pass. We have missed your well reasoned insights.

Good to see an analyst using DCF to determine the intrinsic value of DT, but I don’t understand the numbers. For instance why is the PV of the next ten year’s cash flow negative when DT is, or is about to, produce positive cash flow numbers. And the number of shares in no way reflects the number of shares actually in issue (actually about 700m rather than the ca 500m used in the calculation).

On the GM margin - yes it is an important number as it reflects the direct cost of supplying the service, but the Cost of Sales is only a small part of the overall operating and financial costs. The number to me that is most relevant is the Free Cash Flow that is the cash left over when all other financial and non-financial costs of running the current business are taken into account. Buffett refers to this as the owner’s funds and we, the owners, expect the BoD to use this money wisely for our benefit.. It is the present and future cash flows that determine the intrinsic value of a company using DCF.

All IMHO.

SW77 if I recall correctly Buffett/Munger admitted recently that they got their evaluation of Amazon wrong as they did not have the competence, or foresight at the time, to envisage how Amazon could generate sufficient cash in the future to justify the SP. Their thesis is that to invest successfully one has to be able to see ( and be confident in) where and how that value is to be created. In their view the concept is equally relevant for so called value companies like utilities or for jam tomorrow growth stocks like DT.

The way I see it, I am not buying a stock, but a share in a business, and all businesses need eventually to be profitable. It took a long time for Amazon to become profitable, but did Amazon not make $33billion net profit last year?

Personally I can envisage a good cash generative future for DT, but the sooner it makes a profit, and converts that into free cash, the more comfortable I will be about the future. But we all see thing differently so good to exchange views and opinions.

Yes a profit for 1H22 but there was a cautionary note in the update for Q3 about cost increases, so, in my view, it remains far from certain whether DT will be profitable over the whole year 22. Also they capitalised certain commission costs in 1H22 -presumably legitimately - for later amortisation. A temporary situation so FY23 is still looking good.

‘Consistent with prior expectations, Darktrace continues to forecast that, relative to 1H FY 2022, its cost structure will increase as a percentage of revenue in 2H FY 2022. This expected increase is largely due to the extrapolation of cost trends related to the return of travel and entertainment, recent and ongoing hiring, facilities for employees returning to offices and, in key locations, the Group moving to larger premises. It is also considering the investment now being made in its recently announced U.S. Federal Division, as well as absorbing the net costs associated with its acquisition of Cybersprint. While the return of certain costs and the addition of others may temporarily flatten margin growth in the short to intermediate term, scale efficiencies continue to support expected long-term steady state margins.“

Good assessment Sheltie. We won’t hear about profitability until the FY22 results are issued in September and I suspect,too, that DT will not be profitable the full year. It did turn a profit over the half year though, so all being well, it should turn a profit in FY23 if growth continues as it is/was.

Talking of valuing growth stocks and the need for profitability soon. I came across this clip by Buffett who explained how they value growth stocks using the parable of “ A bird in the hand is worth two in a bush.” Basically Discounted Cash Flow approach but presented in a novel and fun way. Worth a look for anyone interested in this sort of thing.

https://www.youtube.com/watch?v=wgo12pdxbME

Is interesting. They have backed the company since the early days pre IPO, have been net sellers post IPO so buying again must, IMHO, be good news.

Bobocaca - I couldn’t agree more.

Bobocaca - my view in answer to your question is - do your own fundamental research and trust your own judgement. Opinion of others based upon well reasoned logic is, in my opinion, is a useful input as part of that research, but only as a test to challenge one’s own thinking ( have I considered all aspects, have I got it right?).

Trading updates about 2 weeks after the end of each quarter - so about mid-July yes.

Thanks Berylfu - the formation of Darktrace Federal and the CEO appointment adds to Darktrace’s reputation as “one of TIME magazine’s ‘Most Influential Companies’ for 2021”. Excellent!

Spot on SW77. All new businesses, or projects within a business, need money up-front to develop the business initially and will consume cash for a considerable period of time - and be unprofitable during that time. That does not mean that these businesses are not valuable and that a value cannot be estimated for them. But this value is from future positive cash flows requiring some understanding and imagination to determine how this , and how much, cash is to be made. Paying out money now for jam tomorrow is not for investors - who want to buy a stake in a business - that do not have some understanding of the business and/or are faint hearted.. For traders it is another story. Bitcoin is not a business, generates no cash, and is only as valuable as the next fool is willing to pay for it -The Greater Fool Theory.

CRWD and DARK seem to me to be on a similar profitability trajectory - Sentinel One seems further behind but is growing faster.

GF- looks like you called it correctly. Mr Market is seemingly unimpressed with CRWD’s update.

I Thought CRWD’s update is encouraging for them and DARK. All key indicators up significantly and the most important metric to me - the Free Cash Flow - is up 34% and positive. The company is also extremely well funded.

If the SP falls today, it would seem to me that Mr Market is again being it’s normal irrational self.

TVR reported by RNS at the end of each and every month. The small change from end April probably due to share issue from an incentive scheme.

Perhaps. Who is selling; who is buying?

TA1 - if they are bean counters as you say, they will be almost certainly be using DCF analysis and will have taken a view on future Free Cash Flows. These would seem to me to be pessimistic - perhaps because as you say “they are incapable of creative thought”. The point I was trying to make is that this could have been deliberately so in order to negatively influence the market. Anyway it is a pity so many punters pay so much attention to broker’s views - IMHO IIT is best to follow one’s own analysis and judgement.

Bobaocaca - I would suggest that JPM know exactly what they are doing and why they are doing it.. The question to mind is whether their analysis is professionally objective or subjective due to a conflict of interests. Broker’s views are just opinions anyway- neither right or wrong in the absolute sense. Some use TA, or FA - sophisticated or otherwise -, or their gut feeling or come up with a recommendation to influence the market. Best treated, in my view, with a great deal of caution unless one knows how they arrive at their view or has confidence in the individuals involved.

PG = spot on. Huge difference in the approach between traders and investors according to the definitions proposed by Ben Graham in “The Intelligent Investor” and the likes of Buffett/Munger. One lot is only interested in the SP and it’s movements - the other in the business itself and the progress in the business fundamentals that may eventually be reflected in the SP. Different worlds, and never the Twain shall meet!