Concerns over Sophos as shares tank in early trading after ‘subdued performance’ warning

Sophos Group shares were down 23 per cent in early morning trading after reporting “subdued performance” in its third quarter trading update.

The IT security company said a “challenging” previous year was context for the disappointing results, which saw the company earnings decline eight per cent year-on-year for the nine months to 31 December to $104m (£80.2m), down from $113m the previous year.

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The firm saw a “modest decline in billings from new customers as well as a decline in hardware billings”, sparking this morning’s sell off.

Sophos’ reported two per cent billings – or new business invoiced – growth for the third quarter, against two per cent in the first two quarters, putting it on course to miss its projections of “modest improvement” in growth in the second half of the financial year.

Revenue was up 7.3 per cent to $178m, while operating profit was $23.9m, up from a small loss this time last year.

Meanwhile cash flow for the Oxfordshire-based company was up 6.9 per cent to $18.7m.

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Kris Hagerman, Sophos chief executive, said: “Sophos remains strongly positioned from a technology, product, and strategic perspective. We are confident in our strengthening product platform and how it positions us for the future.”

In a research note, analysts at Shore Capital Markets said earnings before tax were “light versus full year expectations, though profitability and net new customer additions read more positively”.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown: “There are a lot of problems in this announcement, not least the fact that management guidance once again has proven overly optimistic. The networks business looks like it’s running into real problems – and while there’s some positive noises on recent product launches, there’s little in the numbers to back that up.

"Our real concern is that repeated cuts to guidance. Little in the way of explanation raises serious questions about management’s grip on the business and has perhaps irreparably damaged the group’s credibility with investors”.