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Micro Focus mixed results disappoint market

Following the merger with HPE Software, the group’s financial year-end moves to October from here on out
January 9, 2018

Much was riding on these half-year numbers from Micro Focus (MCRO) following its $8.8bn (£6.5m) merger with HPE Software last September. Complicating matters further, the enlarged group is moving its financial year-end from April to October – leading analysts at Barclays to describe these results as “something of a lost period”. Even so, the market was clearly disappointed: the shares tumbled 15 per cent on their release. HPE Software reported revenues of $2.9bn – at the bottom end of management’s most recent guidance.

IC TIP: Hold at 2,127p

The new business’s weaker trading stemmed partly from disappointing sales in the US. Meanwhile, the existing Micro Focus product portfolio endured a 17 per cent fall in licence revenue to $123m during the six-month period, driving a 7 per cent overall segmental decline to $500m.

But group revenues still rose by 80 per cent to $1.23bn, while bosses significantly revised down their forecast medium-term tax rate from 33 per cent to 25 per cent. This could help lift earnings in the near term. Former chief financial officer Mike Phillips will be replaced by Chris Kennedy, formerly of Arm and easyJet (EZJ). Mr Phillips takes up the new role of director of M&A.

Analysts at Numis forecast cash profits of $1.58bn for the year ending October 2018, up from their $1.47bn pro-forma figure given for the year to October 2017.

MICRO FOCUS (MCRO)   
ORD PRICE:2,127pMARKET VALUE:£9.26bn
TOUCH:2,125-2,127p12-MONTH HIGH:2,749pLOW: 1,993p
DIVIDEND YIELD:3.2%PE RATIO:44
NET ASSET VALUE:1,750¢*NET DEBT:54%
Half-year to 31 OctTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20160.6811339.629.7
20171.2314635.834.6
% change+80+29-9+16
Ex-div:18 Jan   
Payment:09 Feb   

*Includes intangible assets of $15.1bn, or 3,475¢ a share

£1=$1.35