Shares in enterprise software firm Micro Focus (MCRO) leapt 77p or 28% to 349p after the company confirmed that full year revenues to the end of October would be around $3 billion, or 10% lower than last year, in line with market expectations.
The company also revealed its EBITDA (earnings before interest, taxation, depreciation and amortization) margin would be 39%, towards the upper end of management expectations, thanks to ‘operational improvement and cost initiatives’.
Revenue guidance by business line was consistent with analysts’ expectations, with Consulting, Maintenance and Licensing all seeing an improvement in the second half compared to the first half, while Software as a Service (SaaS) saw little change in growth rates.
Although cash flow generation was strong, and net debt has been reduced by $400 million compared with a year ago, the firm is still cautious on the long-term economic outlook and has therefore deferred a decision on the final dividend.
TURNAROUND PROGRESS
Micro Focus has been engaged in a self-help plan for the last nine months to turn the business around. In June it raised a significant amount of debt at lower than expected interest rates to secure its financing needs out to 2024.
Chief executive Stephen Murdoch commented: ‘Whilst there remains a great deal to do, I am pleased with progress in both overall operational effectiveness and in the delivery of our key strategic objectives.
‘Cash generation and working capital management remain strong, the investments we've made are showing encouraging early results and we continue to see a clear, ongoing customer need for our solutions and approach to digital transformation.’
ANALYSTS BULLISH
Analyst Will Wallis at Numis observed that while today’s update provided a stronger base for 2021, at this stage he was happy to leave his forecasts where they were.
However, if management can show further progress towards its 2023 targets, he sees potential for the share price to multiply by between three and five times: ‘While there is much still to achieve, with significant risks, we think risk-reward is substantially positively skewed.’
