Arqit Quantum Inc

Arqit Quantum Inc. (NASAQ: ARQQ) is a United Kingdom-based quantum encryption technology company. The Company supplies a quantum encryption platform-as-a-service which makes the communications links of any networked device secure against current and future forms of attack such as attack from a quantum computer. The Company’s product, QuantumCloud, is a cloud delivered symmetric key agreement platform as a service. 

Recent Financial and Business Updates:

Arqit reported operating results for H1 2023, comparing to H1 2022:

• Generated USD 2.6 million in revenue and operating income, a decrease from USD 12.3 million in 2022.
• QuantumCloudTM revenue amounted to USD 19.0 thousand from two contracts, including a NetworkSecureTM sale through a partnership and to a U.S. government and defense contractor. Additional NetworkSecureTM revenues expected. In 2022, QuantumCloudTM revenue was USD 5.3 million from enterprise license sales.
• Other operating income of USD 2.6 million came mainly from a project contract with the European Space Agency, compared to USD 7.0 million in H1 2022 from the ESA contract.
• Administrative expenses for the period were USD 25.0 million, down from USD 26.6 million in 2022, with a headcount increase to 170, but pro forma headcount now 150 after cost reduction. USD 9.0 million non-cash charge for share-based compensation in 2023, USD 10.1 million in 2022.
• Operating loss was USD 34.6 million, compared to USD 14.3 million in 2022, due to lower revenue, a USD 12.2 million impairment linked to the Virgin Orbit bankruptcy, and lower other operating income.
• Loss before tax was USD 21.8 million, adjusted loss before tax was USD 34.7 million after deducting the non-cash change in warrant value. Profit before tax was USD 58.0 million, adjusted loss before tax was USD 14.4 million in 2022, primarily due to a change in fair value of warrants.
• Cash and equivalents at the end of H1 2023 were USD 41.5 million, compared to USD 48.9 million in September 2022.
• During the period, 1,706,744 restricted share units were granted under the equity incentive plan, totaling 4,466,723 restricted share units and 8,004,817 options granted to employees, officers, and directors to date.
  

Arqit has undergone significant changes in its go-to-market strategy and business operations. Here are the key points:

• Go-to-Market Strategy Pivot: In December 2022, Arqit shifted its focus from direct enterprise license sales to selling its QuantumCloudTM platform as a service (PaaS) through channel partnerships.
• Revenue Generation: The company generated initial revenues from channel partnerships during the first half of fiscal year 2023. New business inquiries through these partners have validated the merits of the strategy.
• Enterprise License Sales: Arqit continues to engage with customers in the government and defense sectors, where some prefer not to use cloud services. However, sales cycles in these sectors have been lengthy.
• Specialized Applications: To optimize customer consumption, Arqit is concentrating on selling specialized applications of QuantumCloudTM PaaS for specific vertical market opportunities. Initial applications include Arqit NetworkSecure™ and Arqit TradeSecure™.
• Quantum Satellite Monetization: In December 2022, Arqit announced that it no longer requires quantum satellite hardware and plans to monetize its quantum satellite, which is currently under construction.
• Virgin Orbit Bankruptcy: Arqit is the largest unsecured creditor identified in the Virgin Orbit Chapter 11 bankruptcy process. The bankruptcy is not expected to significantly impact Arqit's business operations.
• Cost Reduction Initiative: In May 2023, Arqit implemented a significant cost reduction initiative, including eliminating 20 positions in the company. Pro forma headcount is now 150, and further cost reductions are expected if a satellite division transaction is completed.
• Equity Offerings: Arqit issued 10 million ordinary shares and warrants in a registered direct offering in February 2023, generating USD 20 million in proceeds. The company also established an at-the-market equity offering program.
• Satellite Division Sale: Arqit is considering the sale of its satellite division, which includes satellite assets, patents, customer contracts, and an engineering team.

Technical Observation (on the daily chart)

The price of ARQQ stock has shown a consistent downward trend since making the 52-week high of USD 10.67, with a correction of 86.34%. Currently, the stock is near an important support zone of USD 1.10-USD 1.20, from where price has taken support in the past. A breakout in upward direction from levels of USD 1.35-USD 1.45, would likely initiate a new short-term trend in the up direction with targets of USD 1.60-USD 1.70 levels. The RSI (14 period) momentum indicator is at an oversold value of 53.55, with expectations of some consolidation or a short-term upside momentum. Moreover, the price is currently positioned above both the 21-day SMA and 50-day SMA trend-following indicators, which may act as dynamic short-term support levels.

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As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Speculative Buy’ rating has been given to Arqit Quantum Inc. (NASAQ: ARQQ) at the current market price of USD 1.32 as of July 19, 2023, at 06:40 am PDT.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

How to Read the Charts?

The Green colour line reflects the 21-period simple moving average (SMA) while the red line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

The reference date for all price data, currency, technical indicators, support, and resistance levels is July 19, 2023. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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