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June 24, 2011 3:44 am

Micro Focus slips on ‘disappointing year’

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Shares in Micro Focus, the software company being chased by a number of private equity firms, slipped 8 per cent on Thursday as it issued results for “a disappointing year”.

Micro Focus full-year results to April 30 2011
Revenue Pre-tax profit Earnings per share Dividend
$436.1m $114.5m 47.04 cents 23.4 cents
↑ 0.8% ↑ 16.5% ↑ 25.5% ↑ 7.3%

Like-for-like sales at the group fell 6 per cent in the year to the end of April.

“We’ve had a number of issues that have been visible for a while and we’ve not got to grips with them,” said Kevin Loosemore, executive chairman.

The board’s unhappiness at the pace of change led to the departure of Nigel Clifford, the chief executive, in February. Mr Loosemore took the executive chairman role, which he intends to keep for at least three years.

Mr Loosemore said the company had previously had an excessive focus on big migration contracts that involved transferring companies’ data to new servers.

Micro Focus’s share price surged in April after a tentative takeover approach from Bain Capital. An approach from a second private equity group, Advent International, was revealed last month. The Financial Times understands at least one other potential bidder has expressed an interest.

However, Mr Loosemore said firm news of a bid might be some way off. “If you look back to [previous takeovers] and see how long it took from initial discussion to conclusion ... often it’s four or five months.”

Some analysts have criticised Micro Focus for its focus on Cobol, a mature and increasingly unfashionable programming language. However, Mr Loosemore said there remained a vast addressable market.

“There are probably 1.5m lines of Cobol written every day, which is more than gets retired,” he said.

Vijay Anand, an analyst at Espirito Santo, said like-for-like sales would continue to slide for much of this year but could rally thereafter. “The current management team could well turn around the company,” he said.

Group sales rose 0.8 per cent to $436.1m (£272.4m). Pre-tax profit increased 16.5 per cent to $114.5m, largely because of the absence of one-off costs reported in the prior year, while earnings per share rose from 37.49 cents to 47.04 cents. The dividend rose 7.3 per cent to 23.4 cents. The shares closed at 326½p.

FT Comment

The poor trading performance is having a bigger impact on Micro Focus shares than the bid interest. On 10 times forecast earnings, the rating is about half of that afforded to the rest of the UK software sector. The shares have fallen since last month’s peak of 398.6p, as investors fret about the lack of takeover news. Analysts say any bid would be over 400p – perhaps much higher in the event of a bidding war. At 326½p the shares, justifiably, reflect scepticism that a bid will materialise.

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