Trading updates are always extremely useful when I am deciding whether to buy shares in a company. They give an up-to-date assessment of how the company is performing, as well as offering some forward guidance. Here are two UK firms that released their half-year and full-year trading updates today, showing several positive signs. I think now is the time to buy both companies.
A cyber-security firm
Darktrace (LSE: DARK) has had a mixed start to life as a public company. After soaring to around 1,000p, the UK share has since dropped back to under 400p. But after today’s excellent trading update, and some other recent positive developments, the shares have managed to climb back to over 500p. I think they can continue to soar.
Even as a current shareholder, the trading update exceeded my expectations. In fact, revenues in the six months to 31 December 2021 reached over $192m, over a 50% year-on-year increase. Even more impressive was the fact that the company saw an operating profit of over $8m, mainly due to the pandemic-related suppression of some key costs. This is a change from the consistent losses the company has been seeing. While I don’t believe this is a sign of consistent profitability, especially as the costs are likely to return soon, it’s still a promising sign.
Even more promising is the updated forward guidance. For FY22, the company now expects year-on-year revenue growth of over 45%, updated from previous guidance of 43%. The recent acquisition of Cybersprint should also boost revenues in the longer term.
There are a couple of risks that must be pointed out though. For example, it has a high valuation, with a price-to-sales ratio of around 10. This implies that revenue growth is already expected to be very high. Further, share-based compensation is expected to increase over the next year, potentially leading to share dilution.
Despite these risks, the potential of Darktrace certainly seems too strong to ignore. This is a UK share I’ll continue to add to my portfolio.
A packaging UK share
Mondi (LSE: MNDI) is a FTSE 100 share that has delivered consistent growth over the past few years, while also paying a sustainable, and fairly high, dividend. Its recent results also demonstrated its consistent growth.
For example, in 2021, revenues were able to grow 16% year on year to €7.7bn, while operating profits grew 23% to over €1bn. This gives Mondi a price-to-earnings ratio of just 11. Considering that it’s managing to deliver strong growth, this seems very cheap. It also raised its full-year dividend 8%, reaching 65 cents. This equates to a yield of around 4%, far higher than many other UK shares.
Even so, the current conflict between Russia and Ukraine is a severe problem for Mondi, because it has significant operations in both countries. In fact, Russian revenues equate to around 12% of the group’s total. Loss of these revenues would, therefore, have a significant impact on the Mondi share price. As such — and also for the sake of an end to the suffering — I hope that a ceasefire is not too far away.
Despite this risk, Mondi is not a Russian company and will not be targeted by western sanctions on Russia. It should be able to mitigate the impacts of the conflict through its other operations. This is why it remains a stock I’m happy to have in my portfolio.
Stuart Blair owns shares in Darktrace and Mondi. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
