AA word of advice for cybersecurity firm Darktrace as it exposes itself to short-seller attacks: Don’t rely on fanboy “nothing to see here” statements. If you want to bolster investor confidence when a New York hedge fund questions your accounting in a lengthy report, you usually have to go through the hard work of point-by-point rebuttal.
Tuesday’s Darktrace response to a tool called Quintessential Capital Management was placed in the boilerplate category. The company said it has “full confidence” in its accounting practices and financial statements, and that its board and management take their fiduciary responsibilities “very seriously.” In other words, all the standard stuff.
More details to follow. The fact of life in the stock market is that it is pointless to complain about the lack of contact from the report authors, which was another line provided by Darktrace. The market just wants to know what you have to say about specific charges.
Darktrace shares its corporate roots with Mike Lynch and Autonomy, the London-listed software company that was sold to Hewlett-Packard for $11 billion in 2011, in a deal that led to a six-year civil fraud case. is up. United Kingdom. Lynch, who is also a major Darktrace shareholder with his wife, is fighting extradition to the United States to face criminal fraud charges. He denies the allegations.
But the shadow of Autonomy only emphasizes the need for a precise response to Quintessential Capital by Darktrace. The hedge fund may talk nonsense, but the onus is on the company to show – possibly with the help of its auditors, Grant Thornton. Executive director Papi Gustafsson should consider the positive side of a successful and transparent defense. He may quiet the city’s persistent murmurs about the cyber firm’s exorbitant sales and marketing costs, which were a focus of the hedge fund’s report.
A senior member of Darktrace’s board is hopeful – ex-Capita chairman Gordon Hurst. Sir Peter Bonfield, former chief executive of BT; David Wiltz, former Conservative education minister – Take the adult approach. Short sellers are not a minor irritant that can be easily dismissed or ignored – or not always. They should be taken seriously.
Quintessential Capital itself may be low-profile, but others have been involved in more short-selling plays around big companies such as former FTSE 100 firm NMC Health and, more famously, German payments giant Wirecard. Shorters are also legitimate players in a well-functioning stock market: this place needs a few skeptics to counter the ra-ra bullish defaults.
None of that, to repeat, suggests that Quintessential Capital is on the right track in Darktrace. Its “deep research” may be deeply flawed. The hedge fund may have misunderstood or piled on assumption upon assumption. Short sellers also sometimes miss their target.
However, Quintessential Capital’s report is out for all to see, and Darktrace’s stock was falling. At 210p, they are down a fifth since the new year, below the 2021 float price of 250p and miles from their all-time high of almost £10. It is necessary to try to change the narrative. As analysts at stockbroker Davy argued, Darktrace “operates in the cyber security arena and trust is everything”.
The best way to respond to a report titled “The Dark Side of Darktrace” is to turn on the lights. Choose full exposure and detailed description.