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Cloud-based security platform Sophos (SOPH) is topping the this morning, its shares +6.9% after a trading statement suggesting strong momentum in Q3 and an upgraded outlook. Revenues +11% were boosted by strong software subscription (billing +16.1%), a very successful first full quarter for next-generation product Intercept X and, perhaps more importantly, operating profit back in the black. While performance in Europe remained solid, growth in the US accelerated and Asia held steady.
Management’s strong visibility over future billings, revenues and profitability (improved renewal rates; continued new customer growth) and free cash flow +28% (upgraded outlook sees this doubling in the full year) appears to be underpinning bullishness, sending the shares for a test of all-time highs from Nov 2015.
Adding to a string of positive reactions to recent acquisitions (Tesco, Reckitt), Sophos buying US-focused Invincea (machine-learning, signature-less, next-generation tech) for $100m (7.5x billing, 10.2x revenues) is also clearly being taken as an opportunity to bolster the group, adding to 20% to the top-line, and SOPH’s size and experience allowing it to work a $11.8m pre-tax loss into a profit.
Mike van Dulken, Head of Research, 8 Feb 2017
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