Micro Focus reports 20% profit rise

Micro Focus International said it had put a “torrid” 2010 behind it, as the FTSE 250 software company reported a 20 per cent jump in interim profits and returned £83.6m ($131m) of cash to shareholders.

Kevin Loosemore, executive chairman, said the company had refocused on its core business after the Berkshire-based group battled to recover from a poor 2010, and had moved on from an aborted takeover bid in the summer.

“After a fairly torrid year last year we have effectively stabilised the company in our first half,” Mr Loosemore told the Financial Times. “We have reminded ourselves what we are – we are a great software company.”

Micro Focus, which updates ageing computer systems and provides automated software testing, on Wednesday reported a 20 per cent increase in first half pre-tax profit to $75.8m and revenues that edged up by 1.6 per cent.

The positive figures prompted Micro Focus to offer shareholders a cash return of 45p per share. It also boosted its interim dividend by 14 per cent to 8.2 cents.

Over the past 18 months the software group has undergone a series of senior management changes – including the loss of two chief executives and a finance director – and warned that revenue growth had stalled.

Shares in Micro Focus, which sells and maintains software based on the programming language Cobol, fell earlier this year to less than half their April 2010 peak of above 500p. But they have recovered over the past few months to trade around 400p.

“There is more confidence now. We have shown to the shareholders that we can get this thing on track,” said Mr Loosemore, adding a note of caution that the group was “still being relatively conservative for the second half”.

In the six months to October 31, sales edged up $215.6m to $219.1m. At constant currency rates, revenues fell by 2.6 per cent, whilst diluted earnings per share rose from 26.27 cents to 31.42 cents. The shares rose by 21.6p, or 5.7 per cent, to 403.1p.

FT Comment

When analysts say that Micro Focus has endured “a tumultuous 18 months”, they are not understating the situation. The loss of two chief executives and a financial director, the stagnation of revenue growth and a drawn-out takeover attempt put Micro Focus in the headlines for all the wrong reasons. Things have settled down since, and the message from management is that the group is set for a slow recovery and that there is “still much to do”. Trading on a multiple of 10.6 times 2012 earnings – roughly half the software sector average – investor concerns appear to be priced in. But with recurring revenues comprising roughly half of turnover, strong cash generation and a management committed to pleasing shareholders, there seems to be room for a further recovery in the shares.

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