1st Dec 2022 16:32
(Alliance News) - Darktrace PLC is one of Redburn's preferred names in cybersecurity, an industry the broker implored investors to not "miss out" on.
The opportunity in cybersecurity is larger than the market believes, Redburn said.
"Cloud adoption, hybrid working environments and increased threats have radically added to the complexity of everything that organisations need to secure, which in turn has become a growth driver for the sector," Redburn explained.
"In order to protect themselves against cyberattacks, most organisations have too many different security software solutions, which is not only expensive but also ultimately less secure. Closing security gaps and ironing out inefficiencies are at the top of the agenda, shifting the market increasingly towards a platform-based approach. The current macro environment, where IT budgets are under pressure, accelerates this trend, spurring product aggregation and industry consolidation."
However, macroeconomic headwinds can still hurt cybersecurity firms, with a caution from CrowdStrike Holdings Inc on Wednesday evidencing that. CrowdStrike warned that "macroeconomic headwinds elongated sales cycles with smaller customers". It also meant that larger customers turned to multi-phase subscription start dates, delaying revenue recognition.
Redburn added: "Cybersecurity is not immune from macro headwinds, as highlighted by the recent CrowdStrike warning. However, near-term expectations have been reset and, once the dust settles, the focus will shift again to the structural tailwinds. The threat from the hyperscalers is exaggerated, as their approach has inherent limitations."
On individual firms, Redburn prefers those with a "large installed base of customers". New York-listed Palo Alto Networks Inc tops that list. FTSE 250 constituent Darktrace is the next best, however.
"Darktrace's differentiated AI platform is the leader in next-gen automated network detection, response and investigation. Darktrace's solutions offer compelling value by reinforcing an organisation's security posture. By expanding its product offering at low cost, it will have further up-sell opportunity," Redburn added.
"It is well-placed to deliver strong growth over the medium term and will achieve long-term profitability with scale. Its near-term valuation multiples are attractive and, at its current market cap, remains a potential target for takeover by either larger vendors looking to add capabilities or private-equity investors."
Redburn rates Palo Alto, Darktrace and CrowdStrike at 'buy'.
By Eric Cunha; [email protected]
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