Thank You Aleman from ADVFN26 Jun 2022 10:04
It's not too much debt on current trends, hence the dividend payment. It's a software business with low capex requirement so more operating cashflow finds it's way to being free cashflow, sometimes even when profit is negative due to a high non-cash amortisation charge from acquisitions. Cashflows manage debt, not profit. Software businesses generate more cash than others so can carry more debt. With another $300m of cost cuts in the pipeline, it looks set to keep churning out $400m+ of free cash even on slightly declining revenue. Forecasts are to keep paying the dividend and reduce debt. (The interim dividend in Sterling will actually be higher if exchange rates hold a few weeks.) Even though revenue forecasts have just been revised down slightly to marginal declines in 2023 and 2024 (possibly as much due to the strong $ as anything), debt is still predicted to fall over $1bn in 3 years, and these are with updated forecasts that will have taken higher interest rate forecasts into account (which have actually backed off a little in the last few days as commodities indices have fallen significantly (10%) from highs two weeks ago). The dividend outlook remains subject to exchange rate movements but is generally stable, and will rise after 2024 if debt reduction forecasts are hit.
Revisions so far have seen little free cashflow, dividend and debt outlook change since March yet the shares are down 25%. It's an overreaction driven by shorters chasing further tech sector collapse victims but MCRO has little exposure to the privacy law changes, and linked ad revenue headwinds, that have hit Apple, Google, Instagram and the like. MCRO is now tempting to yield hunters - a turnaround stock yielding 7%+ while you wait for recovery and a likely much higher dividend later. Okay, one or two stocks of this type might sour but a portfolio of such stocks generally turns out very fruitful in time. Yield investors play the odds, too, and they look quite good here at this price. It will be drawing new buyers in.
And not forgetting the $545m net debt reduction in H1 was after they spent $28m cash on the Debricked acquisition and $48m on acquiring intangible assets (as well as the $65m on the dividend). If they were in trouble, all of these could have been dropped to add a further $141m to debt reduction. Presumably, they feel they are comfortable for cash generation head room and did not need to.
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