Reputation risk further muddies Darktrace investment case, says JPM

"While we believe that demand for cybersecurity solutions will remain robust despite the macro headwinds, investors are likely to favour high quality companies with a sticky customer base, healthy free cash flow generation and a clear path towards sustainable profitable growth," JPM said.

"With higher SMB/mid-market exposure and the prospect of higher competition potentially challenging the company’s ability to deliver profitable growth, we do not expect Darktrace’s discount relative to its peer group to narrow."

More recently, JPM said, the combination of reputational risks associated with links to Autonomy and the overhang from stock held by employees and pre-IPO shareholders, further supports the bank’s view that Darktrace will continue to underperform.

It noted that the shares slid 15% on 18 May following press reports that Nicole Eagan - CSO and ex co-CEO - was named as ‘part of a clique’ responsible for misrepresenting the success of Autonomy and was previously a subject of a Department of Justice investigation.

"Darktrace shares have since partially reversed the single-day loss, primarily driven by the company’s response to the press reports and share purchases by certain Darktrace executives (CEO and CTO).

"However, we believe that this is unlikely to firmly reassure on the potential reputational risks associated with its historical links to Autonomy."

At 1100 BST, the shares were down 3.4% at 342.40p.