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Sophos: We'll have a market cap of £1bn when we IPO

Investors can grab a piece of hot security real estate from July 1

Brit security slinger Sophos’s listing on the London Stock Exchange went live today, giving the firm a market cap of around £1bn – a valuation that has caused a stir among analysts.

The intent to float was confirmed weeks ago, with the Oxford-based firm expecting to raise cash to fund the next phase of biz development and rub shoulders with the security heavyweights.

Sophos confirmed that shares started conditional trading today at 225 pence per unit and unconditional trading from 1 July. The equity valuation is £1.01bn.

The Endpoint, UTM and cloudy provider is looking to raise $125m (£79.4m) gross through the listing. Net funds will be spent on reducing the overall indebtedness of the business, Sophos said.

Existing shareholders are to sell their stakes, with a total of £273m set to be returned to them.

Private equity investor and majority shareholder Apax is set to retain a 40 per cent stake following the admission. The founders will keep hold of 18.9 percent of the shares, Investcorp some 2.5 per cent and the directors will hold 1.7 per cent.

In a canned statement, Kris Hagerman, chief exec, described the listing as a “significant milestone” and that with its 15k channel partners “we look forward to the next stage of our development”.

In the year to March 31 2014, Sophos made an operating profit of £10m, versus £13m in the prior fiscal, on the back of sales of £128m, which were up ten per cent.

In the latest financials, yet to be filed at Companies House, the company said turnover had reached $476m (£309m) following the buys of Cyberoam Technolgies and Mojave Networks.

Ian Spence, founder and CEO at industry analyst Megabuyte, said Sophos is “undoubtedly” a strong player in cyber-security, but he questioned the market cap.

“We have to confess ourselves to be a little perplexed by the valuation," Spence said. "Whether this premium valuation is sustainable over the next couple of years will depend to a large extent on whether Sophos can continue to accelerate its organic revenue growth to 20 per cent, while still maintaining a decent level of EBITDA.”

Over at TechMarketView, chairman Richard Holway noted the talk about the valuation, “but if you think it’s high, take a look at competitors like Baracuda, Palo Alto, et al”.

“How do you have a solid, well run, profitable company with good prospects against new upstarts with high growth (at the moment) but no profits," Holway asked. "We seem to face this dilemma all the time! But boring old Holway still loves profits and cash.” ®

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