Micro Focus closer to completing HPE deal

When the HPE deal goes through, Micro Focus will be one of the world’s largest dedicated software businesses, providing the means for companies to modernise and squeeze value out of their IT infrastructure. The business model throws off a lot of cash, and in the year to April 2017 this rose from $456.1m (£354m) in the previous year to $564.8m; that’s around 102 per cent of adjusted cash earnings. It also means that net debt fell from $1.63bn following the Serena acquisition in May last year to $1.41bn.

Assuming the HPE deal is completed on time, the group will change its financial year-end to 31 October and will report an 18-month financial period to 31 October 2018. Revenue for the six months to October 2017 is expected to be flat as the HPE acquisition beds in. Much of the year was spent integrating recent acquisitions and improving the product offering, and 185 product releases or significant enhancements were rolled out during the year.

Business in North America was disappointing in the third quarter that left year-on-year revenue down by 5.7 per cent. This was not helped by a fall in host connectivity after an entire sales team and management structure left to join a competitor. Revenue was also lower in Asia Pacific and Japan, with strength in Japan and Australia offset by weakness in India and Asia.

The product portfolio for the SUSE computer operating system accounted for 22 per cent of group revenue, up from 18 per cent a year earlier, after making two acquisitions, while additional capacity was also created by increasing the headcount.

Analysts at Numis Securities are forecasting pre-tax profit for the 18 months to October 2018 of $1.18bn and EPS of 187¢, rising to $1.36bn and 215¢ in 2019.