Punchy valuation

When Sophos came to the market in July last year it was demonstrating enough promise to warrant its £1bn price tag.

Sophos looked like an opportunity for UK investors to access a growing part of the technology sector. And data security has risen to the top of the agenda for many companies after damaging data breaches at places such as TalkTalk and British Gas last year.

Sophos writes software that protects firms against hackers and cyber criminals. The business is aimed at mid-sized companies. The customers download its software, via “cloud computing”. The software is then regularly updated and supported through call centres.

Investorswere prepared to bet that Sophoswould eventually become a profitable company to rival the US technology giants. Therewere some encouraging signs in the most recent annual results. The amount customerswere billed increased by 17pc, and revenue increased 23pc during the 12 months to the end ofMarch. However, the company still reported a full-year loss before tax of $54.3m(£37m). will struggle to achieve initial expectations.

It is true that the company has been hit hard by the slump in the value of the euro and emerging market currencies against the US dollar. The like-for-like billings and revenue growth was 17pc and 12pc respectively in the third quarter if foreign exchange rates hadn’t moved.