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Cloud-based security platform Sophos (SOPH) is topping the this morning, its shares +8.5% to trade fresh record highs in response to FY results. This makes it a trio of favourable updates this year following a 6% jump in early Feb (Q3 trading statement; strong momentum, upgraded outlook) and gains of >15% in early April (FY trading update; very strong end to Q4, billings ahead of forecasts). Add to this a 7% rise earlier this week after global Ransomware cyberattacks and it’s no surprise that the shares have put on over 50% since the turn of the year.
Today’s results back up April’s FY trading statement and inspire confidence in management’s outlook. Revenues +11%, billings +18% and deferred revenues +17% were in-line with upgraded guidance. A tripling of cash flow, beating upgraded guidance for a doubling, and a significant 28% narrowing in pre-tax loss is, however, better than expected. Even if Q4 couldn’t emulate Q3’s foray into operating profit.
Guidance for mid-to-high-teens billings growth for 2018 and margins +100bp is solid. What’s even more attractive is sufficient visibility for management to forecast billing 50%+ to hit $1bn by fiscal 2020 (16.5% CAGR) and margins adding at least 100bp per annum to help cash flow climb alongside. This looks reasonable, given current strong momentum across all regions and products. It also helps explain confidence enough to increase the dividend quite significantly, even if the shares still only yield 1.1%. Now it’s all about growth keeping pace to justify the share price.
Mike van Dulken, Head of Research, 17 May
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