Sophos shares slump after latest billings warning

Sophos lost more than a fifth of its value after the cyber security group issued its second billings warning in the past five months.

In an unscheduled trading update the FTSE 250 company said it expected to report billings up 6%, or 2% at constant currency, for the three months to the end of June. That growth rate compares with 22% billings growth in its previous financial year.

Sophos said the sharp slowdown in growth was mainly due to a tough comparator period at its Enduser business, where billings rose more than 50% in the year-earlier period as customers sought to protect themselves from a spate of ransomware attacks. The first half of last year also included the launch of a new product that boosted the group's growth.

Sophos said these factors would also apply to the second quarter of its current financial year though less so than in the first quarter.

“As the prior-year comparators normalise, we expect a return to mid-teens constant currency billings growth in the second half of the year,” Sophos said. “Our long-term outlook remains unchanged.”

Sophos shares fell 22% to 480p at 08:19 BST.

The warning is the second time in five months that Sophos has alerted investors to disappointing billings. In February it said billings had slowed to 14% in the three months to the end of December, down from 23% in the first half. Billings picked up again in the final quarter of the year to the end of March.

Martin O’Sullivan, an analyst at Shore Capital who recommends buying Sophos shares, said: “This is a disappointing result for the quarter and the first half, particularly as recent competitor commentary confirms a positive demand backdrop for IT security products and services … While Sophos says its long-term outlook remains unchanged, there is clearly more uncertainty around [its] 2020 targets.”

Sophos will publish its scheduled first-quarter trading statement on 26 July as planned.