In ancient Greece, a sophos was a wise man — or sage, if you like. The latest addition to quoted UK software businesses is, with a market capitalisation of £1 billion, about a sixth of the size of the other big software provider, the venerable Sage, but Sophos Group has ambitions to grow, nonetheless.
Both serve the SME sector. Sage provides relatively old product, Sophos is at the more cutting edge, IT security.
Most of us use Norton or McAfee for our firewalls, while large corporations have huge IT departments to cater for their needs. Sophos reckons the mid-market is poorly served, and is ideally suited to its cloud-based offering, which allows security threats to be identified and neutralised in real time.
The company has chosen London rather than Nasdaq in New York for its market debut. There is an inevitable gap between what US investors value such businesses at and what London ones will pay, but it does not seem that great and, with the departure of tech stocks such as CSR, Wolfson Microelectronics and Advanced Computer Software, there is plainly a hole in the market here for those wanting to invest in computer stocks.
The $125 million being raised will go to pay off debt,
which came on board when Apax Partners, the private equity group, bought the company in 2010. The interest savings, and a lower amortisation charge, will transform the finances this financial year and push the company into a pre-tax profit.
No consensus exists for earnings per share, though, and this measure would probably be in the stratosphere. Sophos reported earnings before interest, tax and other one-offs, or Ebitda, of $101 million last year, a healthy fifth of billings. These are growing at a rate of around 15 per cent, about double the market average; a figure of $110 million or so in Ebitda looks achievable this year.
The company will also pay a dividend this year, about a fifth of free cashflow — though a nominal sum, allowing the funds that require such payments to invest.
The shares, in the first day of dealings, added 8p to 242p, against a float price of 225p. Given the lack of identifiable metrics, I would rate this one a long-term buy but a speculative one.
IT security market in 2014 $32.6bn
81% Share of revenues from subscriptions
MY ADVICE Buy long term
WHY Though the shares do not trade on any recognisable metrics, the IT security market is growing fast and Sophos is comfortably outpacing it
In the latest quarter of its financial year Topps Tiles passed a significant milestone. It now sells more than half its products to the trade, mainly small tilers and odd-job men, rather than to the public.
This cuts both ways. With more and more of us eschewing DIY, a shift towards the trade market makes sense. Margins, though, are tighter, while there is more and keener competition from the big builder’s merchants.
Topps continues to build its market share, with like-for-like revenues for the third quarter to the end of June rising by 5.9 per cent, suggesting an acceleration into the period. There is no sign of the difficulties besetting HSS Hire and, as reported yesterday, Speedy Hire, because those two serve the heavier end of the trade. There was, perhaps, some fall-off before the election but this will probably be made up.
What is driving the business is housing transactions and, much more significantly, consumer confidence, because most of the work is done for householders staying put. The shares, up ½p at 145p, have advanced strongly since the autumn and sell on 18 times earnings, which looks up with events.
Like-for-like Q3 sales growth 5.9%
MY ADVICE Avoid for now
WHY Shares have advanced, and earnings multiple is high
Greene King really did get a bargain when it bought Spirit Pub Company. As I suggested when the deal was announced last autumn, the price looked cheap for a business that had plenty of scope for improvement still ahead of it.
It was the biggest chain to come on the market since the recession, adding 1,207 pubs to Greene King’s existing estate of 1,900 and tilting the group further towards the London market. There were obvious regulatory concerns, some analysts expecting the Competition and Markets Authority to require 100 disposals. In the event, after an exhaustive trawl through the nation’s high streets for overlaps, the CMA required only 16.
This is an astonishingly benign outcome, and I am not sure the market yet appreciates it. Greene King shares have been strong since the start of the year and added 5p to 849½p on full-year results to May 3 that contained few surprises.
Total sales at its retail estate were ahead by 5.9 per cent, but a disappointing World Cup and tougher Scottish drink-driving laws depressed margins. Pre-tax profits were slightly lower at £168.5 million, reflecting the sale of more than 300 underperforming pubs. Since the year end performance has been flat. The evidence suggests that as consumer confidence grows, people are spending on “big ticket” items that they have delayed buying rather than seeking solace in the pub.
Greene King shares have been strong since the start of the year and sell on 13 times earnings. That still looks attractive, given the long-term benefits of the Spirit deal.
Revenue £1.32bn
Dividends 29.75p
MY ADVICE Buy
WHY Benefits of Spirit deal not yet in the share price
Follow me on Twitter for updates @MartinWaller10
