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Ransomware attack shines light on Sophos

Ransomware attack shines light on Sophos

The importance of effective cyber security was shown all too clearly by last week's ransomware attack on the NHS. But even without the spikes in demand caused by such high profile events, cyber security is the fastest-growing division of the IT industry, accelerating at 7 per cent a year. Sophos (SOPH) has, once again, outpaced that growth. Reported billings rose by a fifth at constant currencies to $632m (£486m) as the group added more than 40,000 organisations to its books, to take its total customer base above a quarter of a million.

Alongside new customers, Sophos has been adding new products including the Intercept X which stops IT systems from being infiltrated by ransomware - timely, indeed. Such new products not only attract new customers, but encourage existing ones to add bolt-on services, meaning the group's current contract renewal rate stands at 106 per cent.

Adjusted operating profit was hit by a higher level of deferred revenue (meaning expenses have been taken on contracts but all the revenue not yet booked). Adjusted cash profits - a more reflective measure of profitability - rose 24 per cent to $150m, while free cash flow nearly tripled to $133m. Management expects this rate of growth to continue and has targeted adjusted operating profits of $100m by FY2020.

Analysts at JP Morgan expect adjusted EPS of 10.9ȼ in the year to March 2018 (from 16.2ȼ in FY2017)

SOPHOS (SOPH)
ORD PRICE:403.7pMARKET VALUE:£1.86bn
TOUCH:403-404p12-MONTH HIGH:407pLOW: 146p
DIVIDEND YIELD:0.9%PE RATIO:na
NET ASSET VALUE:28ȼ*NET DEBT:219%

Year to 31 MarTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
2013362-144.0-35.4na
2014379-91.0-25.9na
2015447-54.0-14.7na
2016†478-68.4-16.41.8
2017530-49.3-10.34.6
% change+11--+156

Ex-div: 14 Sep

Payment: 13 Oct

*Includes intangible assets of $856m, or 186ȼ a share

†Sophos listed in July 2015 £1=$1.30

IC VIEW:

After stellar growth, the shares now trade on 48 times expected earnings, but we think the top line growth, the deferred revenue and the repeat business will sustain the momentum. Buy.

Last IC View: Buy, 228p, 9 Nov 2016

visible-status-Standard story-url-Sophos_results_170517.xml

By Megan Boxall,
17 May 2017

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