Sophos value down by 39pc as forecast bucks trend set by rivals
MORE than a third was wiped off Sophos Group’s value after it surprised investors by trimming its forecasts for the second half of its financial year, even as rivals posted strong growth.
Shares in the FTSE 250 cyber-security company closed down 29pc at 339p as it said it was now expecting “a modest improvement” in constant currency billings growth in the six months to the end of March, having previously said it expected growth figures to hit the mid-teens.
Sophos blamed “challenging yearon-year comparatives” for the cut to forecasts and said, looking forward to the following financial year, it was anticipating a “significant improvement” in constant currency billings growth.
Investors took fright at the update, putting the company on track for its biggest one-day share price fall since listing on public markets. At midday, its shares were trading around 26pc lower.
Liberum’s Alexandre Schmidt said the results had “caught everybody by surprise and hence the big share drop, especially because peers have been reporting quite some substantial numbers in the past few weeks”.
“What’s to be seen is what the real value of this business is,” he added.
During the first half of the year, Sophos posted 3.3pc growth in billings, to $353m (£269m), slightly missing analyst expectations, although it swung to a profit in the period. Pre-tax profit came in at $26m compared with a loss of $35.5m a year earlier.
The Oxfordshire-based group had already trimmed its expectations for the first quarter of the year in July, after it said it was unable to keep up the sales growth it had recorded in the wake of the WannaCry outbreak in May 2017. The attack on NHS computers had forced many companies to upgrade their cyber defences.
Sophos reiterated earlier comments on its interim results, saying: “The year-on-year growth rate was impacted by a challenging comparable in our Enduser business [which sells software that guards against hackers], given the dramatic acceleration in demand we witnessed in the comparative period as customers urgently invested in protection against high-profile, global ransomware outbreaks.
“The effect of this extraordinary boost to demand was most evident in the elevated renewal rates we saw a year ago, at 142pc, reflecting heightened levels of cross-selling activity to existing customers.
“This activity has returned to more sustainable levels in the first half of the financial year, with a renewal rate of 118pc for the six-month period.”