Sophos disappoints with slowdown in billings

Sophos disappointed investors with a slowdown in third-quarter billings to send the cyber security group’s shares down sharply on Thursday.

Billings rose 14% in the three months to the end of December at constant currency rates, down from a growth rate of 23% in the first half. Billings weakened despite what Sophos said was the successful launch of a new product during the period.

Sophos shares fell 13% to 539p at 09:30 GMT. The shares hit 654.5p on 19 January – the highest price since Sophos’s flotation at 225p a share in June 2015.

The company’s former private equity owner, Apax, sold almost half its remaining stake in November. Chairman Steve Munford and chief executive Kris Hagerman sold a total of more than £7m shares that month after Sophos raised its forecasts for new business this year.

Sophos pointed out that the launch of its InterceptX product a year earlier had skewed the comparison but analysts were still surprised. Numis analysts said billings should have been supported by bigger renewals orders to offset much of the effect of the launch, with InterceptX an acquired anti-ransomware offering that integrates with users' other software and protect against the like of the WannaCry attack that crippled the NHS last summer.

Reducing their rating to ‘hold’ from ‘add’, Numis said: “The slowdown in billings is a little worrisome, particularly given the renewals tailwind in the quarter, but probably more significantly, the beat-and-raise pattern at Sophos looks to be, at least temporarily, on hold for now, as is our recommendation.

"There is no doubt that the billings slowdown here is a little disappointing, and the timing, so soon after the Apax and directors' placings, is unhelpful, but we are leaving our full-year forecasts unchanged."

Hagerman said: "The strong demand for our industry-leading cybersecurity solutions continued in Q3. Customer reaction to XG Firewall v17 has been very positive, and we are delighted to have recently launched a major new release of Intercept X. Consequently, as our business continues to post strong growth the board is confident both in the outlook for the full-year and the longer-term prospects of the group."