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Digital Security: The rising threat of ransomware

September 2021 by Barclays Capital Inc.

A surge in targeted, high-profile ransomware attacks over the past year has brought digital security to the forefront of company and government agendas. Cyber-attacks more broadly rose 20% y/y in 2020 as the shift to remote working and ongoing development of digital business models created new avenues and opportunities for cyber-criminals to launch attacks. We draw attention to the proliferation of ransomware, which accounts for c23% of all attacks.

Ransomware is evolving rapidly in both scope and sophistication, leaving all sectors at risk – we highlight healthcare and manufacturing in particular. While the challenge is not new, ransomware-as-a-service (RaaS), double-extortion strategies and the use of cryptocurrencies have made attacks easier to execute. With the damage now transcending the cost of ransom and threatening critical infrastructure (e.g. Colonial Pipeline), it is becoming an increasingly complex task for companies to manage. Our Ransomware Framework highlights opportunities for investment in digital identities & biometrics, tighter regulation of crypto exchanges and cyber-security solutions in preparation for attacks. With a company now falling victim to ransomware every 11 seconds, we believe that urgent investment is needed to manage the risk, with dedicated CISOs, stronger threat monitoring tools and awareness training all being critical. We identify opportunities across 8 sectors, highlighting 30 companies well positioned to drive stronger digital security.

Why read this report?

• A proliferation in cyberattacks, a very timely theme: 2021 has seen a huge proliferation in cyber-attacks, and ransomware in particular, with many attacks making it into mainstream media like the Colonial Pipeline or JBS meat events. We see all sectors at risk, but healthcare and manufacturing in particular have been disproportionately impacted.

• Ransomware is our focus area: This has enabled us to go beyond looking at traditional cybersecurity controls and put forward a Ransomware Framework to discuss broader methods to combat attacks including digital identities & biometrics and the controversial topic of cryptocurrency regulation. While preventing attacks entirely will be difficult, we believe that urgent investment is needed to manage the risk and minimise cost, with dedicated CISOs, stronger threat monitoring tools and awareness training all being critical.

• Assessing exposure across 8 sectors (company profiles and theme exposure). We identify 30 companies that are well positioned within the Digital Security theme. We have estimated revenue exposure for each company based on a H/M/L scoring (75% of names scored ‘high’ or ‘medium’) and have created company profiles for key players to help highlight with more granularity how each company has exposure to the theme. ‘High’ exposure companies (>25% of group revenue) include pureplay cybersecurity providers (CrowdStrike, Palo Alto, Tenable), as well as broader software (Splunk) and Telecom equipment providers (Nokia, Ericsson). Medium exposure includes cyber-insurers (Beazley) and digital identity & security (Thales). However, for many of the companies we highlight with lower exposure today (e.g. Telecoms, IT Hardware), we see potential for digital security to become a more meaningful percentage of revenues over time; especially given how rapidly the cyber-threat landscape is evolving.

A surge in targeted, high-profile ransomware attacks over the past year has brought digital security to the forefront of company and government agendas. Cyber-attacks more broadly rose 20% y/y in 2020 as the shift to remote working and ongoing development of digital business models created new avenues and opportunities for cyber-criminals to launch attacks. We draw attention to the proliferation of ransomware, accounting for c23% of all attacks. Ransomware is evolving rapidly in both scope and sophistication, leaving all sectors at risk – we highlight healthcare and manufacturing, in particular. While the challenge is not new, ransomware-as-a-service (RaaS), double-extortion strategies, and the use of cryptocurrencies have made attacks easier to execute. With the damage now transcending the cost of ransom and threatening critical infrastructure (e.g. Colonial Pipeline), it is becoming an increasingly complex task for companies to manage. Our Ransomware Framework highlights opportunities for investment in digital identities & biometrics, tighter regulation of crypto exchanges and cyber-security investment in preparation for attacks. With a company now falling victim to ransomware every 11 seconds, we believe that urgent investment is needed to manage the risk, with dedicated CISOs, stronger threat monitoring tools and awareness training all being critical. Ransomware is becoming more sophisticated, targeted and damaging. Emerging trends such as double-extortion strategies and RaaS have made attacks not only easier to execute, but more disruptive to society. With no signs of this threat slowing down, ransomware damages are projected to reach $265bn within the next 10 years (Figure 1), and we see scope for this to be materially higher as intangible costs continue to rise.

Combatting ransomware. We put forward a Ransomware Framework addressing various stages of the value chain: i) Deter attacks through investment in digital identities & biometrics, ii) Disrupt ransom payment channels with crypto regulation, iii) Prepare for the worst with in-house or third-party cyber-security investment.

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.




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