Shares in Sophos Group PLC (LON:SOPH) surged on Thursday morning after the cyber-security firm announced “another year of strong growth”.
The group said reported billings growth for the year to the end of March would be towards the top end of the company’s guidance range of +20% to +22%, representing around 18% growth on a constant currency basis.
Shore Capital’s number-crunchers reckon 22% growth in fiscal 2017/8 billings would imply a number around US$771mln, which just so happens to be Shore’s own estimate; the range of forecasts spans from US$758mln to US$774mln.
The final quarter of the financial year saw year-on-year billings growth of around 23% in actual terms or 16% on a constant currency basis.
UBS said the fourth quarter growth figure implied billings of around US$231mln relative to the consensus forecast of US$228mln and UBS’s own forecast of US$230mln.
“We would expect Endpoint to have remained the out-performer, with possibly Intercept X V2 picking up some momentum. Renewal rates look likely to have improved on Q3's level,” the Swiss bank said.
Brokers applaud the update - brief though it was
UBS said the billings data bodes well for management meeting its targets on cash earnings before interest, tax, depreciation and amortisation (Ebitda) and unlevered free cash flow (FCF); management is targeting Ebitda margins of 24.2-24.7% and unlevered FCF to be modestly ahead of the previous year’s US$132mln; the consensus forecasts are 24.0% and US$139mln respectively.
“Sophos repeated its ambition to deliver US$1bn in billings in 2020, which implies a CAGR [compound annual growth rate] of around 14%. We note tough comparatives remain in Q1 19 especially, as that represents when last year's WannaCry attack unfolded,” UBS said.
“Consensus billings of US$897m (UBSe: US$891m) represent 17% growth; and while currency will likely remain a tailwind (UBSe 2%), we are not expecting any upgrades on the back of today's news. Nonetheless, this news should be good for the shares,” UBS predicted – correctly, as it turns out, as the shares were up 16% at 482.8p.
UBS rates the shares a ‘buy’ and has a 12-month price target of 660p.
Shore Capital also reckons the shares are worth buying, noting that recent volatility has “given rise to better value in the shares”.
“Sophos represents high growth in a low-growth world together with scarcity among European large cap cyber-security plays,” Shore said.