FTSE 250 movers: Darktrace powers ahead after EY report; Synthomer slips

by | Jul 18, 2023

(Sharecast News) – Darktrace said on Tuesday that an independent review by EY had not flagged any issues not already known to the cybersecurity firm and that it would not impact previous financial statements.
The company said EY reported “a number of areas already known to Darktrace where systems, processes or controls could be improved”, adding that “there were no key findings arising from this inspection”.

It also noted that Grant Thornton’s audit opinions for prior years remain unchanged.

In January, short seller Quintessential Capital Management accused the group of irregular accounting practices, sending the shares to an all-time low.

Darktrace insisted that the review would have no impact on previously-filed public company financial statements or “change their belief that those financial statements fairly represent Darktrace’s financial position and results”.

The company also provided an update on trading for the fourth quarter and year to the end of June. Darktrace said it expects year-over-year revenue growth of at least 31% for FY23, and 29.2% at constant currency. It also expects 18.3% growth in customer numbers and an adjusted EBITDA margin of at least 22%, up from previous guidance of 19%.

For FY24, it expects annual recurring revenue growth of between 21% and 23%. Darktrace said it was expecting 2024 to be a “tale of two halves”, with around 45% of net annualised recurring revenue to be added in the first half, and the rest in the second.

“It remains clear that macro-economic uncertainty is continuing to affect new customer acquisitions and some existing customer behaviour,” it said.

“However, with early signs of recovery across the global economy, and with the opportunity to benefit from the recent and ongoing investments in its Go-To-Market strategy and wider organisation, Darktrace is framing its FY 2024 in terms of first half stabilisation and second half re-acceleration.”

At 1220 BST, the shares were up 21% at 355.50p.

Victoria Scholar, head of investment at Interactive Investor, said: “The stock has surged today by almost 20% bringing its six-month rally to over 40%, reflecting the optimism towards the third party review that rebukes the short-seller concerns.”

She added: “Shares had already been rebounding significantly this year after the company raised its 2023 guidance in April.”

Danni Hewson, head of financial analysis at AJ Bell, said: “After coming under fire from a short seller about the state of its finances, Darktrace called in EY to review its books.

“Today we’ve had the findings from the report and they’ve essentially proved that the cybersecurity expert doesn’t have any skeletons in the closet, sending its share price soaring. Yes, there is some work to do with improving systems and controls, but nothing that impacts previous financial statements. Investors breathed a huge sigh of relief.”

Just Group backed its expectations for the year on Tuesday as it reported a near doubling of its first-half retirement income sales thanks to a strong annuities market.

In an update for the six months to the end of June, the company said retirement income sales rose to £1.9bn from £879m in the same period a year earlier. Defined benefit sales jumped 149% to £1.4bn and Just Group said it completed 35 transactions during the period, up from 14 a year earlier.

Just Group said the DB market has been consistently busy and this momentum is expected to continue.

Retail sales rose 54% to £0.5bn. Just Group said the retail annuity market was “buoyant”, as higher interest rates have increased the guaranteed returns from annuities, and made them more attractive to financial advisers and customers.

It said the annuities market had its busiest six-month period since pensions freedoms reforms in 2014.

“Given the strong new business growth in the first half of 2023, we are highly confident of achieving our financial ambitions for the full year,” the company said.

“Our delivery so far in 2023 and positive ongoing momentum further supports our confidence in Just’s ability to deliver 15% growth in underlying operating profit per annum, on average over the medium term.”

IntegraFin reported robust flows to its Transact platform in a third-quarter update on Tuesday, as well as an increase in the number of platform clients.

The FTSE 250 company reported net inflows of more than £0.6bn in the three months ended 30 June, with gross inflows totalling £1.5bn.

It said the Transact platform, one of its key business segments, experienced significant growth during the quarter.

The platform added 1,400 net new clients, contributing to a record number of Transact platform clients, surpassing 229,000 at the end of the period.

That represented a 3% increase compared to last year’s third quarter.

Additionally, the number of registered advisers rose to 7,600.

IntegraFin’s average daily funds under direction (FUD) for the quarter reached £54.3b, up from £51.9bn a year earlier.

The company said it remained confident in its financial outlook, with its guidance for the financial years ending on 30 September 2023 and 2024 remaining unchanged since its half-year report in May.

Looking at Time4Advice, IntegraFin’s subsidiary providing CURO software, the company meanwhile said the total number of chargeable users reached 2,700 as at 30 June.

That represented an increase of over 8% during the quarter.

“I am pleased to report a quarter of solid net inflows for the Transact platform, with gross inflows of £1.5bn and net inflows of over £0.6bn,” said group chief executive officer Alex Scott.

“This is pleasing considering the tough macro-economic environment and reflects the strength of our market position and the attractions of our platform.

Outflows remained broadly in line with previous quarters, highlighting the resilience of our business model.”

Additionally, Scott noted that IntegraFin’s guidance for the 2023 and 2024 financial years, issued in May, remained unchanged.

“The outlook for the UK economy is uncertain as we wait to see the full effects of the Bank of England’s interest rate increases.

“However, we expect net inflows to the Transact platform to continue to be resilient, and we remain focused on our aim to be the number one provider of software and services for clients and UK financial advisers.”

Specialty chemicals company Synthomer reported resilient trading in an update on Tuesday, despite a tough market amid a depression in customer demand.

The FTSE 250 firm said that during the first half, it achieved a continuing group revenue of £1.1bn.

EBITDA for the period was expected to fall within the range of £72m to £74m, aligning with the board’s expectations outlined in the 2022 results announcement in March.

Although the second quarter saw higher EBITDA compared to the first, the company said it faced lower volumes resulting from destocking, subdued demand levels across most end markets, and increased competition in certain base chemical product ranges.

However, robust pricing and a focus on margins helped to mitigate those challenges, the board reported.

Synthomer said it maintained a strong emphasis on cash generation during the half-year, achieving reductions in capital expenditure, working capital, and costs across the group.

As at 30 June, its net debt totalled £795m, while its net debt-to-EBITDA ratio, based on leverage covenant, was 5.5 times.

Synthomer also had committed liquidity of more than £400m.

Within its divisions, Synthomer reported progress in key areas aligned with its refreshed strategy announced in October last year.

In the coatings and construction solutions (CCS) division, Synthomer reported robust pricing and margins, delivering an improved trading performance during the period compared to the last quarter of 2022.

The division recently implemented strategic actions aimed at expanding its geographic and customer reach, enhancing organic growth, increasing market share, and improving margins.

Its adhesive solutions (AS) division faced challenges in the period, reflecting the lower volume environment and previously-disclosed operational and supply chain issues related to the adhesive resins business, which was acquired in early 2022.

However, Synthomer said it anticipated that its reliability and performance improvement measures would have a positive impact in the second half of the year, despite continued weak demand.

Additionally, the company said it had committed to expanding its specialty amorphous polyolefins capacity in North America to support growth in the region.

The heath and protection and performance materials (HPPM) division continued to confront the demanding dynamics of the medical glove market, which were persisting from the extraordinary activity during the Covid-19 pandemic.

Synthomer said it expected low nitrile butadiene rubber (NBR) production levels to remain high until the end of 2023.

The company added that it remained focused on managing capacity and controlling costs in the segment.

Synthomer’s non-core portfolio rationalisation programme meanwhile also progressed during the half-year, as part of the company’s ongoing strategic efforts.

Looking ahead, Synthomer said it was cautiously optimistic, explaining that despite its first-half challenges, its focus on cash generation, cost control and strategic actions was expected to support its performance in the coming months.

“The board does not anticipate a material recovery in customer demand before the end of the current year,” the company said in its statement.

“However, we anticipate £20m in self-help measures expected mainly in the second half.

“Overall the Group remains confident of making sequential progress in the second half relative to the first.”

Synthomer said it was continuing to take “decisive action” to strengthen its business, to position it for profitable growth when demand starts to recover.

“We remain confident in our ability to execute our refreshed strategy and deliver the medium-term targets set out last October, which were mid-single-digit growth in constant currency over the cycle, EBITDA margins above 15% and mid-teens return on invested capital.”

Synthomer said it would report its half-year results for the six months ended 30 June on 7 September.

Market Movers

FTSE 250 (MCX) 18,612.34 1.13%
FTSE 250 – Risers

Darktrace (DARK) 388.70p 32.21%
Just Group (JUST) 83.70p 8.42%
Digital 9 Infrastructure NPV (DGI9) 57.60p 7.87%
W.A.G Payment Solutions (WPS) 96.80p 7.32%
Vistry Group (VTY) 746.50p 6.64%
IntegraFin Holding (IHP) 257.40p 4.63%
International Distributions Services (IDS) 259.80p 4.55%
FDM Group (Holdings) (FDM) 605.00p 4.49%
Crest Nicholson Holdings (CRST) 191.90p 4.12%
Bellway (BWY) 2,088.00p 4.09%

FTSE 250 – Fallers

Synthomer (SYNT) 76.75p -4.06%
Watches of Switzerland Group (WOSG) 696.50p -2.52%
CMC Markets (CMCX) 150.20p -1.83%
Discoverie Group (DSCV) 831.00p -1.66%
Cranswick (CWK) 3,248.00p -1.52%
Abrdn Private Equity Opportunities Trust (APEO) 428.00p -1.50%
Empiric Student Property (ESP) 86.30p -1.37%
Me Group International (MEGP) 161.20p -1.23%
Renishaw (RSW) 3,964.00p -1.10%
Spectris (SXS) 3,578.00p -1.00%

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