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Sophos beats expectations

The cyber-security group reported flat constant-currency billings
May 17, 2019

Shares in cyber security group Sophos (SOPH) climbed 14 per cent on release of a better-than-expected set of full-year numbers. Revenues beat consensus estimates (per Bloomberg) of $696m, underpinned by a double-digit rise in subscription sales. Billings were flat at constant currencies – hardly inspiring, but still an improvement on the “modest decline” anticipated within January’s third-quarter update. 

IC TIP: Sell at 381p

A year ago, Sophos enjoyed a step up in demand in the wake of the ‘WannaCry’ ransomware attack and the launch of its ‘Intercept X’ product. But it has since seen “a return to more traditional levels of cross-sell activity”, leading to a net renewal rate of 124 per cent – down from 140 per cent. It has also undergone a “mix shift” in billings, with growth in smaller customers buoyed by managed service provider (MSP) monthly billings, and fewer big transactions.

Such momentum among MSPs has contributed to Sophos’s new approach to guidance – now focusing on revenues and adjusted operating profit, while billings are “becoming less indicative of the medium-term growth in its business”.

Consensus forecasts are for adjusted EPS of 15ȼ for the September 2020 year-end, against 13.9ȼ in FY2019.

SOPHOS (SOPH)   
ORD PRICE:423.5pMARKET VALUE:£2.04bn
TOUCH:323.5-423.512-MONTH HIGH:646pLOW: 273p
DIVIDEND YIELD:1%PE RATIO:97
NET ASSET VALUE:32ȼ*NET DEBT:82%
Year to 31 MarTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
2015447-54.0-14.7na
2016†478-68.4-16.41.8
2017530-49.3-10.34.6
2018 (restated)639-41.0-13.24.9
201971153.65.65.2
% change+11--+6
Ex-div:19 Sep   
Payment:11 Oct   

*Includes intangible assets of $837m, or 174ȼ a share

†Sophos listed in Jul 2015

£1=$1.28