Morning Note: Market news and updates from Crowdstrike and Johnson Matthey.

Market News

Israel and Lebanon’s Hezbollah started a 60-day cease-fire after reaching a deal following weeks of US-mediated talks. Joe Biden said the US, along with Egypt, Qatar and Turkey, would make a fresh push for a truce between Israel and Hamas. Brent Crude trades at $73 a barrel ahead of the OPEC+ meeting.

US equities pushed higher last night – S&P 500 (+0.6%); Nasdaq (+0.6%) – as traders digested Donald Trump’s latest cabinet appointments, a day after his tariff threats roiled global markets. The President-elect named Jamieson Greer, a longtime protégé of Robert Lighthizer, as the US Trade Representative. Kevin Hassett was picked to direct the National Economic Council. Tom Homan, Trump’s choice for border czar, promised mass deportations and escalated enforcement on the border with Mexico. China state media warn Trump against mutually destructive tariff war.

The minutes of the last Federal Reserve meeting indicated broad support for a careful approach to future rate cuts. Austan Goolsbee said it would be “perfectly sensible” for the central bank to slow the pace of easing as it approaches what it deems a neutral policy setting. The 10-year Treasury yields 4.29%, while gold ticked up to $2,648 an ounce. Core PCE, the Fed’s preferred inflation gauge, is released today, with the forecast +0.3% month on month in October.

In Asia this morning, equity markets were mixed with an increase in Hong Kong (Hang Seng, +2.3%) and China (Shanghai Composite, +1.5%) offset by a decline in Japan (Nikkei 225, -0.8%). The FTSE 100 is currently little changed at 8,256, while Sterling trades at $1.2590 and €1.1990. A measure of French bond risk rose to levels last seen during the euro-area debt crisis as a standoff over the country’s budget threatens to bring down the government. The spread over 10-year German bunds is 88 basis points.

Source: Bloomberg

Company News

Last night, CrowdStrike Holdings released results for the third quarter of its financial year ended 31 January 2025 which highlighted strong growth and raised its guidance for the full financial year. However, the update wasn’t enough to impress investors, and the highly-rated shares were marked down 6% in after-hours trade.

CrowdStrike is a US-listed cybersecurity technology company with annual revenue of more than $3bn. The CrowdStrike Falcon platform protects customers against cyber-attacks across on-premise, virtualised, and cloud-based environments running on a variety of endpoints such as laptops, desktops, servers, virtual machines, and Internet of Things devices.

The CrowdStrike Threat Graph aggregates security data across its customer base, using advanced AI techniques to create a security solution able to constantly adapt to new threats and attacks. As the company grows, its access to security data will also grow, enhancing its competitive position. The AI-native Falcon XDR platform has become the cybersecurity consolidator of choice.

The business is well placed to benefit from secular trends, such as digital and security transformation, cloud adoption, and a heightened threat environment, which the current geopolitical uncertainty has clearly exacerbated. The 2024 CrowdStrike Global Threat Report highlighted a surge in adversaries leveraging stolen identity credentials. However, at present, Cloud Security Spend is only around 1% of Cloud IT Spend, well below what is considered necessary. The total addressable market is estimated to be $100bn in 2024, rising to $225bn in 2028.

The group offers more than 20 cloud modules via a software as a service (SaaS) model that spans multiple large security markets, including corporate workload security, security and vulnerability management, managed security services, IT operations management, and threat intelligence services. The group continues to add new modules organically and via M&A. The success of the group’s platform strategy and its growing brand leadership have led to a groundswell of customers turning to CrowdStrike as their trusted security platform of record.

Back in July, the company distributed a faulty update to its Falcon Sensor security software that caused widespread problems with Microsoft Windows computers running the software. As a result of the outage, 8.5m systems crashed and were unable to restart properly.

Despite the headwinds caused by the incident, in the three months to 31 October 2024, total revenue grew by 29% to $1,010m, above the company’s guidance range ($979m-$985m) and the market expectation ($982m). Annual subscription revenue grew by 31% to $963m, while professional services grew 10% to $53m. Annual Recurring Revenue (ARR) increased 27% to $4.02bn as of 31 October, the fastest and only pure play cybersecurity software company to reach this reported milestone. $153m was added in latest quarter. The company’s vision is to reach $10bn in ARR over the next five to seven years.

The company unveiled a series of new and enhanced offerings during the eighth annual Fal.Con cybersecurity conference including Endpoint Security, Cloud Security and Identity Protection.

Gross retention rates remain high at 97%, while the number of subscription customers that have adopted five or more modules, six or more, seven or more, and eight or more increased to 66%, 47%, 31%, and 20%, respectively, as of 31 October.

The business has strong operating leverage, with subscription gross margin holding steady at 80%, and achieved improved operating profitability, rising from $176m to $195m. EPS rose from 82c to 93c, well above the company guidance of 80c-81c and the market forecast of 81c. The group generated free cash flow of $231m (down 3%) and ended the quarter with cash and cash equivalents of $4.3bn.

CrowdStrike has nudged up its guidance for FY2025: The group now expects revenue of $3,924m-$3,931m, (vs. $3,890m-$3,902m previously) and EPS of 374c-376c (vs. 361c-365c previously).

Source: Bloomberg

Johnson Matthey has this morning released results for the financial year to 30 September 2024, highlighting reduced profitability, although the company maintained its guidance for the full year. In response, the shares are down 6% in early trading.

Johnson Matthey is a global leader in sustainable technologies, with a focus on catalysis and materials science. The company has simplified its portfolio, focusing on four businesses enabling the automotive, chemical, and energy industries transition to net zero: Clean Air; Catalyst Technologies; Hydrogen Technologies; and Platinum Group Metals (PGM) Services.

Following the sale of non-core assets, the group has slimmed down the business. The transformation programme has delivered £155m of cost savings to date and is on track for £200m of annualised cost savings by 2024/25. The group is making progress against its strategic milestones: three large scale project wins in Catalyst Technologies’ sustainable technologies portfolio and PGM refinery investment is on track.

In the latest six months, the group has continued to execute on its strategy against a challenging macroeconomic backdrop. Reported revenue fell by 14% to £5.6bn. Underlying revenue, which excludes sales of precious metals to customers, the precious metal content of products sold to customers, and the impact of divestments, fell by 3% at constant exchange rates to £1,722m.

By sector, the group’s largest division, Clean Air, remains focused on the improvement of air quality across the world. The division generated sales of £1,165m, down 7% at constant currency. Elsewhere, PGM Services fell by 9% to £207m, Catalyst Technologies grew by 20% to £336m, and Hydrogen Technologies fell 46% to £20m.

Underlying operating profit fell by 4% at constant exchange rates to £154m. Performance was supported by continued strong progress in the transformation programme. Average PGM prices have normalised and remained broadly stable in the half, with an adverse impact to underlying operating profit of £3m.

Free cash flow rose from £78m to £347m, largely reflecting net proceeds from the disposal of Medical Device Components, partly offset by working capital outflows. The group’s financial position remains robust, with gearing of 1.4x net debt to EBITDA at the end of September, below the low end of the target range of 1.5x-2.0x.

The group has declared an interim dividend of 22p, in line with last year. The company is undertaking a £250m share buyback programme, of which £205m was completed as at 22 November.

Looking forward to the financial year ended 31 March 2025, the group continues to expect at least mid-single digit growth in underlying operating performance at constant precious metal prices and constant currency. Performance will be more weighted to the second half, driven by greater benefits from transformation and a stronger performance in PGM Services.

Source: Bloomberg