Theme basket review: Cyber security consolidation at full speed Theme basket review: Cyber security consolidation at full speed Theme basket review: Cyber security consolidation at full speed

Theme basket review: Cyber security consolidation at full speed

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  Russia's decision to invade Ukraine has created tailwinds for cyber security stocks on top of those that were already structurally in place as the number of cyber-attacks have increased dramatically forcing companies and government to increase their cyber security defence. In our annual review of our basket we have replaced four stocks due to number of acquisitions as the industry consolidating fast these years.


Cyber security is rising on Russia’s invasion of Ukraine

Our cyber security theme basket is up 7.5% in February driven by a whopping 3.7% gain yesterday as investors are rotating into equities that provide upside or hedging capabilities in an inflationary environment with added geopolitical risks. The industry was already accelerating in terms of growth before the invasion of Ukraine with the median revenue growth in the basket being 20.2% y/y with the median operating margin at -6.7% over the past 12 months. This is still an industry that is growing fast and prioritizing growth over profitability.

Since the invasion of Ukraine companies and governments have increased their spending on cyber security to be prepared for any cyber-attack. According to this Forbes article, the number of Russian-sourced cyber-attacks increased 800% in the immediate 48 hours after the invasion started, and key government infrastructure in the US has been put on high alert.

NameMarket Cap (USD mn.)Sales growth (%)Operating margin (%)Diff to PT (%)5Y return %
Palo Alto Networks Inc58,52428.4-6.74.6410.1
Fortinet Inc55,40428.819.54.5837.7
Crowdstrike Holdings Inc44,76968.8-10.538.6NA
Zscaler Inc33,50160.4-31.436.5NA
Cloudflare Inc37,67552.3-19.533.6NA
Okta Inc28,44050.0-52.744.8NA
VeriSign Inc23,5454.965.318.2155.6
Splunk Inc18,75310.6-45.937.488.4
Check Point Software Technologies Ltd19,2404.941.9-6.146.1
NortonLifeLock Inc16,87210.441.5-5.583.8
F5 Inc12,19910.814.621.841.3
SentinelOne Inc11,077100.2-124.154.5NA
Avast PLC8,7575.441.9-12.2NA
Trend Micro Inc/Japan8,2889.422.9-0.255.3
CyberArk Software Ltd6,7658.3-15.619.2234.7
Rapid7 Inc6,00930.1-22.426.9600.9
Tenable Holdings Inc6,07722.9-7.719.7NA
Qualys Inc4,89113.321.311.6259.6
Varonis Systems Inc4,68833.3-25.335.4367.1
Sailpoint Technologies Holdings Inc3,88220.2-13.340.9NA
Venustech Group Inc3,58045.817.254.314.5
Darktrace PLC4,21441.3-13.776.9NA
CommVault Systems Inc2,8038.35.421.827.9
Radware Ltd1,58314.66.413.3120.2
F-Secure Oyj8957.37.513.561.5
Aggregate / median400,78420.2-6.721.8104.3
Source: Bloomberg and Saxo Group

The industry is undergoing a rapid consolidation with Proofpoint being acquired by the private equity firm Thoma Bravo last year and Microsoft recently going after Mandiant (formerly FireEye), and Avast is being acquired by NortonLifeLock. In addition, McAfee is being taking private by a group of investors. The industry is rapidly evolving technologically and in terms of complexity, and as a result we expect the consolidation to continue with the industry ending up being dominated by 4-5 companies sitting 80% of the combined revenue in the industry.

The stocks that have been removed due to acquisitions or otherwise are:

  • Mandiant (because we expect Microsoft’s acquisition to go through)
  • McAfee
  • Mimecast
  • SolarWinds (reviewed this company and it is not pure enough cyber security)

Avast is being kept in the portfolio for now but the acquisition by NortonLifeLock will most likely go through in April and at that point we will update the basket again.

The stocks we have added are:

  • SentinelOne
  • Darktrace
  • Radware
  • F-Secure

Darktrace and F-Secure increases the geographical exposure a bit away from an otherwise very US-centric basket.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.