Abingdon-based cyber security software specialist Sophos (SOPH) gathered the great and the good of investment as it hosted a capital markets day yesterday (Wednesday, 29 Jun), and also updated on trading so far this year. The overwhelming reaction is very encouraging, and it's not terribly surprising that the share price is firmly in rally mode today, shooting 6.5% higher to 210.3p, far and away beating the over all market's modest 0.3% to 0.4% increase, although still down on the firm's 225p IPO price almost exactly a year ago.
So what are the key points that bolstered the market's confidence in the business?
Firstly, there appears to be an increasing validation of the financial model, with high level of billings visibility and what Numis analyst David Toms calls 'nailed on' growth. This is important because the way Sophos reports what is effectively deferred revenue and what it calls 'cash EBITDA' (earnings before interest, tax, depreciation and amortisation), measures that have their critics (you read more details here).
Secondly, Sophos is clearly winning traction from its cross-selling and upselling tactics. 'Billings were assisted by a material contract with an existing (unnamed) customer,' reports Peel Hunt analyst Paraag Amin. Shares looked at how and why there is a large opportunity back in October, which you can access here.
Amin also points out first quarter to 30 June 'like-for-like billings growth of 20% to 23% year-over-year.' Q1 figures will be announced properly on 28 July, and management seem highly confident on metting or, dare we say, beating full year to 31 March 2017 expectations that currently call for about $75 million EBITDA (Sophos reports in dollars) on a little more than $543 million revenues, and underlying pre-tax profit of about $37.4 million.
It is also worth noting Numis' Toms comments that Sophos has a 'highly innovative product roadmap in which we are still at the early stages.'
'After what feels like high-teens growth in Q1 and easing comps during the year, we think risk is to the upside,' suggests the Numis numbers man.
Peel Hunt's Amin concludes that while his own forecasts remain unchanged for 2017 at this stage, 'if the positive momentum seen in 1Q continues, we will likely see upside to full year 2017 estimates.'