Micro Focus Internation plc (lon:mcro)
Micro Focus – Slow Road To Oblivion?

Micro Focus Internation plc Financials

ItemCurrent PeriodPrevious Period
Period6 Months6 Months
Adjusted Earnings
Adjusted EBITDA£552m£653m
Statutory Profit
Adjusted Profit
Total Debt
Net Debt£4312m£3807m

Commentary History
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Micro Focus Internation plc Share Price
Grade:The Black Grade - Shares That I Think Could Collapse To Nothing Or Suffer A Massive Share Issue.
Title: Micro Focus – Slow Road To Oblivion?
Company: MCRO - Micro Focus Internation plc
Share Price Then: 297p
Author: Ian Smith
Date: Fri 17 Jul 2020
Comments: Micro Focus shares tend to trade at a fairly constant level with an occasional big drop or rise, they have almost have had just four prices over the last 18 months, 1,500p, 2,000p and 1,000p dropping to 820p/400p when COVID affected most companies.

The reason is that the company is the home of valuable and useful but old and sometimes getting close to obsolete computer software and systems.

Their website says;

We believe that organizations don't need to eliminate the past to make way for the future. Everything we do is based on a simple idea: The quickest, safest way to get results is to build on what you have.

and there is a lot of sense in that statement as we have seen with banks trying to make big changes and things falling over.

At around 300p this seems like another share to add to the list of the post COVID recovery list but is it? Micro Focus’ customers don’t start and stop contracts on a whim and products such as Visual COBOL are bought by people who need it not because they are the flavour of the month.

Indeed they have reports a tiny drop of at least two percent in revenue.

If you look at the revenue by sector

Licence $267 $340
Maintenance $966 $1,047
SaaS and other recurring $124 $142
Consulting $96 $112

Licence revenue down a bit more than other sectors, unfortunately there is a trend of lower overall revenue for the last couple of years.

$m $m
Year Revenue Pre tax Profit
2019 3,348 -34
2018 3,684 -78
2017 1.380 195
2016 1,245 195
2015 834 91

The big growth in revenue comes from acquisitions and mergers which is consistent with the idea of keeping old tech going, but the fact is that the group now has $4bn of debt and profits that don’t seem able to ever put the company into a relatively debt free position.

The group is of course in the middle of turnaround plan but is this just a good excuse just to keep the salaries flowing while share holder value dwindles to nothing?
Read Count: 324/13160

Buy/No Buy In A Nutshell
NegativesToo much debt and no obvious escape from declining revenues from expensive acquisitions.
PositivesThe concept of the business is solid, keep old reliable systems going.
Initial Review Price291p
Last Review Price291.25p
Last Review Date02-Sep-2020
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