Wednesday newspaper share tips: Avoid Sophos and Tui AG

Sophos Group was under the microscope in The Telegraph’s Questor on Wednesday.

The cloud-enabled security provider reported a strong third quarter on Tuesday, with growth continuing through a major acquisition in the three months to 31 December 2015, though a strong dollar depleted some of its gains.

Its third quarter like-for-like billings were up 17.4% year-on-year, with growth across all major regions and product categories, though notwithstanding stronger quarterly comparatives.

Sophos' reported billings grew 10.6% year-on-year, reflecting significant currency headwinds including the devaluation of both sterling and the euro against the US dollar.

Reported revenue in the quarter was $121.4m (£84.16m), up 4.7% over 12 months earlier, or 11.9% growth on a constant currency basis.

Its reported cash EBITDA was $34.8m, up 5.5% year-on-year or 16.3% at constant currency.

The company's weighted average contract length in the last 12 months was 28.5 months, a modest increase on the prior year's 28 months, following a small number of longer term deals in Japan.

However Questor said the company has struggled to justify its £1bn valuation when it became the UK’s biggest ever technology flotation in July.

It believed the company has demonstrated a worrying slowdown in sales in its latest results, which has left investors concerned the company will struggle to achieve initial expectations.

The column said it’s not the only concern investors will have.

“There are plenty of signs the stock market flotation was not used to raise funds for growth, but rather to provide an exit for private equity owners who had failed to find a buyer for the company,” it said.

It pointed out that US private equity group Apax bought the company in 2010, and used the floatation to cut its stake to 40%, raising around $100m

With shares now below the float price of 225p, Questor said it was struggling to find reasons to buy shares in what it described as an “overvalued and loss-making company as private equity makes for the exit”, and rated the shares at ‘avoid’.

Meanwhile in The Times, Tempus was suggesting investors avoid Tui AG for now.

The Anglo-German travel giant generated turnover of €3.72bn (£2.88bn) in the three months to 31 December, up 5.4% compared to the same period a year before, if ignoring the impact of currencies, while underlying EBITDA losses improved 7.2% to €97.3m.

If currency effects are included, turnover rose only 2.5% while EBITDA losses narrowed 3%.

The shift in demand away from Turkey has been significant, with summer 2016 bookings there currently down around 40%, though this has seen destinations outside Turkey such as Spain and the Canary Islands benefit instead.

Based on current trading, although the quarter is the least important of the group's financial year, chief executive Friedrich Joussen said the resilience of the integrated business model meant he reiterated guidance for at least 10% growth in underlying EBITDA in 2015/16.

Tempus pointed out that events in Sharm-el-Sheikh had an impact, as well as holidays to Turkey becoming less popular, have had an impact on the company and leaving it find alternative destinations.

It also said the German market remains overcrowded and competitive, however UK bookings were up 3% in the winter and 9% for next summer.

Tempus said the company is showing some confidence in its outlook.

“The company is, however, confident enough to repeat earlier guidance that earnings will be up by at least 10% this year — not bad, given those headwinds.”

However it said it is nervous over any travel industry players at the moment, which is why it rated the shares at ‘avoid for now’ despite a strong rebound from the company.