Micro Focus pencils in special returns as takeovers keep cash flowing

Underlying sales slid 6 per cent in the mature Micro Focus business. Identity, access and security licensing revenue leapt 22 per cent, but that was offset by management's push to align the consulting business more closely with licensing work, as well as tepid maintenance demand. The star performer was the SUSE division, which provides open source software, enterprise servers and cloud storage. Sales there leapt 18 per cent to just over a fifth of group turnover. Total adjusted operating costs also fell a tenth to $712m due to careful spending, cost-cutting and the integration of Attachmate, which Micro Focus acquired for $2.5bn in 2014.

Robust cash generation and a placing meant net debt fell 23 per cent to $1.08bn. But the group's recent $540m takeover of peer Serena Software means it has rebounded to just over management's targeted ratio of 2.5 times adjusted cash profit. Nonetheless, management hiked the final dividend by half, committed to a higher payout ratio and expects to reinstate the group's famed 'returns of value' - which were suspended following the Attachmate deal - in 2017. Numis analysts estimate it will have $250m, or 80p a share, available for return next summer.

Management expects underlying sales to be flat or slightly down this financial year as it establishes a solid foundation, before returning to growth in FY2018. Broker Panmure Gordon expects pre-tax profit of $521m for the year to April 2017, giving EPS of 168¢ (from $436m and 148¢ in FY2016).