Morgan Stanley says broader growth story intact at Darktrace, upgrades

Analysts at Morgan Stanley upgraded their recommendation for shares of Darktrace from 'equalweight' to 'overweight', arguing that the "broader growth story remained intact".

In their opinion, the slowdown seen in constant currency annual recurring revenues over recent quarters - which they had anticipated - was mostly the result of tougher comparables and macro factors.

"Macro weakness bites: In our initiation last September, we flagged that - while we were confident in Darktrace's product and market positioning - there were several factors that kept us Equal-weight.

"One of these was the potential for purchases of Darktrace's relatively greenfield platform to be more discretionary in a tougher macro environment,and that this could lead to deferral of purchase decisions. We see evidence of this playing out [... ]," the analysts said in a research note sent to clients.

"Combined with the most recent company guidance being "sufficiently cautious" and with the shares changing hands on approximately 2.1 times their estimate for its 2024 enterprise value-to-sales, the valuation was "sufficiently cheap".

Morgan Stanley did however trim its target price for the shares from 425.0p to 410.0p.