Micro Focus shares lead FTSE100 higher up 4 percent

MCRO HPE

Micro Focus International (LON:MCRO) leads the FTSE100 higher this morning trading up over 4% north of £22 a share as it announced a 22 percent rise in first-half underlying earnings.

Micro Focus is in the process of paying US$8.8bn for Hewlett Packard Enterprise’s software business and has said that while it had made a good start to the deal, it was maintaining full-year guidance for revenue growth of between minus 2 percent and zero.

Numis is advising on the deal and has commented this morning “Micro Focus has outperformed on nearly all levels in the first half, giving a net 9% EPS beat and 3% full year upgrade. 1.0% underlying revenue growth is well ahead of our -2% forecast, although management reiterate full year guidance of -2% to 0%, and we note that timing of deal closures can impact individual periods, thus 1% growth should not be automatically extrapolated into the second half. However, it clearly provides strong support for the achievability of management’s “modest growth” goal.”

Whilst Julian Yates of Investec was slightly more cautious “Full-year guidance was not raised, implying a softer second half, but we feel this is partly due to conservatism and also to reduce the reliance on [Linux specialist] SUSE having to sustain this growth level. We expect the stock to move up today, but continue to struggle to justify prices above 2400p given the extent of the HPE task and time horizon to deliver required synergies.”

Chief Executive Kevin Loosemoore commented “The board is delighted with our progress.

“Our focus on delivering to our customers by making detailed product by product decisions and investments has resulted in the business achieving modest like-for-like revenue growth.

“Our investments have resulted in strong growth in SUSE and a reduced rate of decline in the Micro Focus portfolio.

“Mergers and acquisitions continue to be a key component of our strategy.

“The key strategic announcement in the period was the HPE Software transaction which is on target to complete in the third quarter of calendar year 2017.

“The acquisition of Serena completed at the beginning of the period together with a number of small acquisitions across the business comprising GWAVA, openATTIC on 1 November and the OpenStack IaaS and Cloud Foundry Paas talent and technology assets from HPE which was announced on 30 November and is currently expected to close in the first quarter of calendar year 2017.

“We are delighted to announce that our interim dividend is increasing to 29.73 cents from 16.94 cents in line with our twice covered dividend policy.”

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