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Sophos Group plc

Sophos knocked down to ‘Hold’ by Liberum following profit warning

The broker said that while it believed the cybersecurity firm was “a solid business”, weakness in its hardware segment and new customer billings, as well as the warning being the third consecutive downgrade this year, necessitated the downgrade

Cybersecurity
Liberum's analysts also highlighted a lack of earnings visibility from Sophos' management

Sophos Group PLC (LON:SOPH) has been downgraded to ‘Hold’ from ‘Buy’ by analysts at Liberum following a profit warning last week.

In a note, the broker said that while it believed the FTSE 250 cybersecurity firm was “a solid business”, weakness in its hardware segment and new customer billings, as well as the warning being the third consecutive downgrade this year, necessitated the downgrade.

READ: Sophos expects subdued trading conditions to continue

In a trading update last Friday, Sophos said in its third-quarter billings were up just 2% year-on-year on a constant currency (CC) basis, adding that the trends were expected to continue into the fourth quarter and result in a modest decline in full-year billings on a CC basis.

The forecast of an earnings decline had been preceded by ever-shrinking growth forecasts since Sophos’ full-year results on 17 May, moving from expected growth in the mid-teens to high single-digit to a modest second-half improvement on the first half to an eventual prediction of decline.

“In our view, the sequence of misses and downgrades makes Sophos a less attractive stock and we believe the street needs reassurances that the company is able to meet its targets”, Liberum said, adding that making assessments over the firm’s trading levels was “highly dependent on management's communications with markets”, resulting in a lack of earnings visibility.

The broker also cut its target price for Sophos to 320p from 400p while lowering its billings estimates for the 2019 fiscal year 5% to US$765mln.

In mid-morning trading Monday, Sophos shares were up 0.1% at 310.6p.

Quick facts: Sophos Group plc

Price: £4.04

Market: LSE
Market Cap: £1.97 billion
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