Sophos Group Plc

Sophos Group Plc (SOPH) provides data protection products and information technology security solutions. The company’s geographic segments are - the Asia Pacific and Japan (APJ), Middle East and Africa (EMEA), the Americas, and Europe.
Financial Highlights – H1 Financial Year 2020 (30^th September 2019, $, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by an increase in the subscription fees for the period, the company’s revenue increased to $365.8 million versus $349.5 million in H1 FY2019. In H1 FY2020, the gross profit was at $290.4 million as against $276.6 million in H1 FY2019. Due to an increase in general finance and admin expenses, the company’s operating profit declined to $4.4 million in H1 FY2020 from $27 million in H1 FY2019. The company’s LBT (loss before tax) stood at $1.5 million in H1 FY2020 versus a PBT (profit before tax) of $26 million in H1 FY2019. The company’s LAT (loss after tax) stood at $7.6 million in H1 FY2020 versus a PAT (profit after tax) of $11 million in H1 FY2019. The basic loss per share in H1 FY2020 was at 1.6 cents versus basic earnings per share of 2.3 cents in H1 FY2019.

Share Price Performance

Daily Chart as at November-6-19, before the market closed (Source: Thomson Reuters)

On 6th November 2019, Sophos Group Plc shares were trading at GBX 570.20 at the time of writing before the market close (at 1:02 PM GMT), down by 0.31 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 587.23/GBX 273.40.

Valuation Methodology

*Peers: SSH Communications Security Oyj, Shearwatar Group Plc, AVEVA Group Plc, Kainos Group Plc and Ideagen Plc.

Conclusion
Brexit can adversely impact economic conditions, which might affect Sophos's business operations and financial performance. As a provider of IT security products, the Group is highly prone to cyber-attack target. The group’s infrastructure, services and products may be targeted by attacks specifically designed to disrupt the group’s business and harm the Group’s reputation.


The software industry outlook stays uncertain, mainly in the United Kingdom and in the United States. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The company is facing emerging headwinds and cost pressures. The demand environment remains to be robust, and the companyhave a very highly effective and distinguished next-generation security product portfolio that spot the group performance. 

Based on the above factors and supported by valuation done using the above method, we have given a “Watch” recommendation at the current price of GBX 574.80 (as on 6^th November 2019, before the market close at 8:00 AM GMT), with support from few catalysts needs to be evaluated at a later stage.

TI Fluid Systems Plc

TI Fluid Systems Plc (TIFS) manufactures automotive parts. The group provides fuel tanks, modules, fluid carrying systems, pumps, filter tubes, and sealed level sensors. The company markets its product worldwide. The company’s business is divided into two reportable segments being Fuel Tank and Delivery Systems (FTDS) and Fluid Carrying Systems (FCS). The company has manufacturing facilities in more than 114 locations across 28 countries. The company was earlier known as TI Fluid Systems Limited.

Recent News
On 5th November 2019, TI Fluid Systems announced the selection of Tim Cobbold as Senior Independent Director. Mr Tim has joined the board on 4th November 2019.
Financial Highlights - H1 Financial Year 2019 (30^th June 2019, €, million)

(Source: Interim Reports, Company Website)
 
In the first half of the financial year 2019, the company’s reported revenue decreased by 3.3 per cent to €1,708.1 million as compared with the corresponding period of the last year. On a constant currency basis, revenue was reduced by 5.3 per cent. Adjusted EBITDA declined by 4.1 per cent to €245.9 million against the €256.3 million in H1 FY18, while adjusted EBITDA margin was 14.4 per cent. Adjusted EBIT margin declined by 1.3 per cent to 10.1 per cent as compared to 11.4 per cent in H1 FY18, driven by lower volumes and cost increased in the Europe region. Profit for the period H1 2019 stood at €59.9 million, a decrease of 21.4 per cent against the €76.2 million in H1 FY18. Adjusted net income reduced by 17.7 per cent to €64.5 million against the same period in 2018. Adjusted basic EPS stood at 12.4 euro cents, a decrease of 17.9 per cent against the 15.1 euro cents in H1 FY18. Adjusted Free cash flow in H1 FY19, stood at €16.8 million.  Interim Dividend per share was 3.02 euro cents and remained flat against the previous year same period data.
 
Share Price Performance

Daily Chart as at November-6-19, before the market closed (Source: Thomson Reuters)

On 6th November 2019, TI Fluid Systems Plc shares were trading at GBX 199.20 at the time of writing before the market close (at 1:35 PM GMT), down by 1.39 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 219.49/GBX 151.28.

Valuation Methodology

*Peers: Nokian Tyres Plc, Vesuvius Plc, Delfingen Industry SA, Renault SA and Kongsberg Automotive ASA.

Conclusion
For the first half of the financial year 2019, both the top-line and bottom-line performance have decreased. For the year 2019, the company expect revenue outperformance to be lower than the previous year due to the challenging automotive sector environment. In the full-year result of 2019, the company expect adjusted EBIT margin to be in-line and slightly weaker than the first half of 2019. The group expect adjusted Free Cash Flow to be robust but lower than the previous year. The company also expect net leverage to be constant against the previous year with decent free cash flow generation.

On the basis of the above rationale, we have given a "Watch" recommendation at the current price of GBX 203.50 (as on 6^th November 2019, before the market close at 9:00 AM GMT), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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