The sales team at cyber security specialist Sophos (SOPH) could do nothing for the next year and still the group would bring in $372m (£283m) of revenue. That’s because it has already secured several long-term contracts, for which the revenue has yet to be booked. Indeed, deferred revenue rose by 28 per cent in the six months to 30 September, dragging total billings up 22 per cent at constant currencies to $342m and giving management the confidence to upgrade the full-year outlook. Free cash flow also came in ahead of expectations – up 15 per cent to $71.4m.
Amid the 1,000 global security vendors, Sophos has carved out a bit of a niche: “90 per cent [of peers] are focused on Global 2000 companies or consumer”, explains chief executive Kris Hagerman. “We provide industrial-strength solutions to small and mid-sized enterprises.” Considering the global market houses between 60m and 70m of these businesses, Sophos – with its 280,000 customers – has plenty more room to grow.
But progress is not only reliant on new customers. Product development has encouraged existing customers to add on services, meaning the group’s renewal rate climbed to 139 per cent in the period. With less than a fifth of total customers taking the group’s full suite of products, there is still a good upselling opportunity.
Broker JP Morgan expects adjusted EPS of 9.9ȼ in the year to March 2018 (from 16.2ȼ in FY2017).
| SOPHOS (SOPH) | ||||
| ORD PRICE: | 641p | MARKET VALUE: | £2.98bn | |
| TOUCH: | 640-644p | 12-MONTH HIGH: | 652p | LOW: 204p |
| DIVIDEND YIELD: | 0.6% | PE RATIO: | na | |
| NET ASSET VALUE: | 25p* | NET DEBT: | 188% | |
| Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
| 30 Sep | ($m) | profit ($m) | share (ȼ) | per share (ȼ) |
| 2016 | 257 | -28.4 | -7.6 | 1.3 |
| 2017 | 298 | -36.1 | -8.4 | 1.4 |
| % change | +16 | - | - | +8 |
| Ex-div: | 16 Nov | |||
| Payment: | 15 Dec | |||
| *Includes intangible assets of $874m, or 188ȼ a share £=$1.31 | ||||
