“Surging UK inflation figures and more volatility in Asian shares didn’t upset the apple cart too much on Wednesday morning as the FTSE 100 started more or less flat,” says AJ Bell Investment Director Russ Mould.
“Weakness among airlines and Burberry, whose fortunes are closely tied to China, reflected a shift in investors’ concerns from the risks of the economy overheating to the recovery being knocked off course.
“This follows some weak Chinese economic data as it, like many countries across the world, wrestles with the more infectious Delta variant of Covid.
“The concerns which dogged cyber security Darktrace ahead of its stock market listing, with investors wary of its associations with alleged fraudster Mike Lynch, have well and truly been put in the shade after the company’s maiden results.
“As much as the numbers for the year to 30 June were impressive in terms of revenue growth and customer additions what will really excite the market is the upgraded revenue guidance for 2022.
“This is not the first time guidance has been lifted and it’s a useful habit for a newly listed business trying to forge a reputation on the public markets to get into.
“IPO costs mean losses have actually increased but, for now at least, investors seems to be prepared to look past a lack of profitability to the prize Darktrace is chasing in a fast-moving and fast-growing industry.
“The importance of cyber security was reinforced in the pandemic as an increasing number of organisations shifted activities online and the cost of paying for the services of a company like Darktrace arguably pale into insignificance when compared with the costs and reputational hit facing any organisation which suffers a major data breach.
“Darktrace’s smart technology, using a self-learning, adaptive platform to spot anomalous activity, has already helped it win a swathe of blue chip customers across a range of sectors and industries.
“The company seems to be doing a good job of hanging on to its existing customers and selling them new services too, and this is crucial if Darktrace is to build on its success to date.”
“Restaurant Group has outperformed the market in all parts of its business which is quite an achievement. But the outlook is harder to stomach with supply chain problems and labour shortages threatening to make life difficult.
“The leisure and hospitality industry has been through some tough times since lockdown measures first started to ease, amid choppy trading conditions.
“Restaurant Group has done well to stay ahead of the pack, but the business is still loss-making which means it must find ways to accelerate revenue growth. This is particularly important given it wants to open new restaurants, more accommodation for its pubs and extra standalone kitchens to feed delivery orders.
“With inflation lifting costs across multiple industries, Restaurant Group should use this opportunity to push up its own prices to help protect margins. After all, consumers are having to get used to a higher cost of living, so any menu price changes won’t look out of kilter with what’s going on across the country.
“But a potential downside is that many people’s wages might not be keeping pace with inflation and so the number of times they can afford to go out, or even order in a takeaway, may have to be reduced.
“Furthermore, the slow recovery in international travel has means Restaurant Group’s airport concessions, once an important source of revenue, are acting as a drag on the group.
“Its purchase of Wagamama in 2018 raised a lot of eyebrows at the time due to the high price it paid. Yet this is now looking like a very sensible purchase as it has reinvigorated the group and given it a brand that remains on-trend, whereas some of its other brands are tired and outdated.
“Even though there is scope to do a lot more with Wagamama, market conditions aren’t quite right to be too aggressive.”
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