Infrastructure software firm Micro Focus (MCRO) has reintroduced dividends despite running up an enormous $2.97 billion pre-tax loss after taking a $2.8 billion goodwill write-down on its underperforming HPE assets.
Micro Focus plans to make a $0.15 shareholder payout after seeing typically strong cash flows during the year to 31 October 2020, despite the pandemic.
Operating cash flow totalled $1.1 billion last year, comfortably covering interest payments of $207 million, bank loan costs ($47.9 million), tax ($150 million), capex ($87 million) and lease-related capital payments ($80.1 million).
Net debt was also cut from $4.6 billion to $4.2 billion. The dividend will cost a relatively small $50.3 million.
PREDICTED FIGURES
Despite the heavy losses, the results were largely as expected, albeit after being downgraded last April. Micro Focus reported revenues down 10% to $3 billion, while adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14% to $1.2 billion equating to a 39.1% margin which was towards the upper end of expectations.
This helps explain why investors have responded so positively to the dividend news. Micro Focus stock rallied nearly 4% in morning trade on Tuesday to 510p, making it one of the biggest gainers in the FTSE 350.
The share price has more than doubled since the year end yet remains a fraction of its pre-Covid £20 levels.
AMBITIOUS BUT CHALLENGED
Micro Focus published a three year ambition approximately a year ago to deliver stable revenues and adjusted EBITDA margins towards mid-40%. The plan would also see the company generating at least $700 million of free cash flow annually.
‘Set prior to Covid-19, the current macro-economic environment is expected to delay how quickly these objectives can be achieved’, said Megabuyte analyst Lee Prout.
‘We continue to question whether we’ll see any interest from strategic buyers or private equity at this discounted price.’
