We would love to hear your thoughts about our site and services, please take our survey here.
Hmm. It doesn't actually say much, beyond 'we've bought some stuff dirt cheap, but we're not really sure what to do now. I'm sure it will be good though". At least MF's business model was better than that.
What's in it for customers?
What are the plans for integrating internal systems and processes? (the mess over HP systems and process integration is pretty much what brought MF down)
Confirmed by RNS (that's completion of the takeover, rather than my summary of value destruction):
https://www.lse.co.uk/rns/MCRO/scheme-of-arrangement-becomes-effective-y2uiyr995ppwdy3.html
Well the share is showing as suspended at the agreed takeover price of £5.32. I guess the takeover has been completed. So, if I've got my numbers right, in round $bn:
Management had a $15bn market cap company.
They sold off the SUSE business and returned $2bn to shareholders.
They turned the remains into a $1bn company.
They doubled that to $2bn of value only by agreeing to go away and let someone else take over.
Fair summary?
Thank you Strathy. I'd missed the Trading Update RNS in the waves of holdings statements that now deluge my inbox. Sales down 6% (after Digital Safe and Russia excluded) is obviously disappointing. However free cash flow is still positive and even better than expectations. The cynic in me wonders if there might have been a less-than-normal focus on closing sales before the year end, as the Exec may have little incentive for that now ('close the deal, take the undeserved bonus, run, hide' thinking?). I suppose the only hope now is that a sharp PE investor outfit spots the easy win and makes a less derisory offer.
Anyone know if we're expecting a trading statement this year? In the absence of any communication, it's hard to know if the Exec have given up either on turning the business around or on the possibility of getting a better offer. My presumption is that they have largely given up on both and are just counting down the days to being handsomely rewarded for their failure.
How to feel? Mainly angry that the exec have turned an £8bn+ market cap company into a sub-£2bn company and, by recommending this offer, appear to be admitting it amounts to more than their turnaround plans were going to deliver.
Is there any hope this offer will crystalise a better one from another suitor?
So do you chaps actually disagree with the group's / CEO's business strategy in any material way? Or are you actually just telling us that what's missing is the appointment of a 'Chief Spin Officer'?
Strathy. I was one of those who thought MCRO an excellent buy at £10+, after it had fallen from £25+. The group seems to have successfully addressed many of the issues which surrounded the fall from £25+ to sub £10, yet the SP languishes where it is. Clearly the group has not yet restored confidence, but there does still seem to be a big value gap. I 'm prepared to hold / build and wait.
"where is anything concerning AWS."?
from the RNS:
"Mainframe modernisation offering continues to deliver strong revenue growth and the launch of the AWS' offering in June 2022 as planned provides further opportunity to accelerate this growth. "
"- Application Modernisation and Connectivity: AWS launched its Mainframe Modernisation offering in June and together we are already enabling customers to accelerate the modernisation of mainframe applications and workloads to the AWS Cloud."
So no impact in the HY results then.
I hope I'm wrong, but ducking the trading statement and holding on for the actual HY results sent me 'trading not great, but lets hope some good news turns up between now and 22 June' signal. I remain longer term optimistic, but tomorrow is a big test.
Perhaps a big part of the potential upside here is that US investors currently see MFGP as 'unfashionable', whereas many would see the likes of Uber, Lyft, Snowflake etc. as trading well above their long term value due to speculative 'bubble' investment. Long term, stocks will return to values which reflect their fundamentals. Micro Focus management do seem to have delivered on fixing internal systems and process issues. If they can also deliver on sales (yet to be proven) and thus cash generation continues, then MCRO / MFGP should return to a sensible multiple. If they can take further cost out and further streamline processes, without upsetting customers, then the multiple should be even higher.
So as well as the "turning the ship around" return of the SP to a sensible multiple of cash generation, Monday's announcement of the Debricked acquisition has me wondering if Micro Focus is now returning to the "click and repeat" mode of acquisitions that underpinned the growth in SP back in the Kevin Loosemore days. That of course all stalled when the HPE acquisition went a bit off the rails. However now they have got the wider group on a common platform, it would seem to make sense again: buy a relatively small business with growth potential, provide it with scalable back office infrastructure, processes etc. cross-sell its product and to its customers.
The last couple of years have seen us hoping for a steady ship and a return to organic growth in cash generation. I wonder if we're now seeing early signs of something more than that.
Thanks Mark. That pretty much sums up why I'm also holding / adding. Even if they just deliver what they project, recovered confidence should deliver a SP of an appropriate multiple of the $500m free cash flow. And if their potential higher growth sales lines (Vertica and other analytics) can deliver real revenue growth, the upside is considerably higher. Management have successfully pulled off the build, implementation and transition of the single 'Stack C' set of systems and processes. That was a huge challenge, a major distraction from actually running the business and (potentially) as significant sales growth enabler. Hopefully that leaves them free to get the SP back up into the £20+ zone again (back in the days when they were targeting £30+).
What is it that you want a new CEO to do Strathy? As best as I am able to judge, Murdoch has told us what he expects to achieve each year and has then delivered against that. Do you believe the current goals are wrong, or sub-optimal? If so, what do you think should be done differently? I would be happy if they achieve their objective of restoring annual free cash flow to $0.5bn+, presumably then with a market cap reflecting an appropriate multiple of that. I expect them to achieve that.
CEO, not CFO.
What is it that you want a new CFO to do Dessy? Murdoch has told us what he's going to do and he seems to be doing pretty much exactly what's promised. Do you want something different ? (What?) Or do you want some theatre, spin or smoke & mirrors? Or do you want a company returned to a position where it delivers $0.5bn+ pa free cash flow and a market cap which reflects a reasonable multiple of that?
Pandamonia: "I dont like cost savings because it usually means a job that was done yesterday is now not being done by someone".
Or a job that was previously being done in three different ways by three people, in the US, UK and Ireland can now, thanks to a single process & technology stack, be done by one person in Bangalore.
Dessy. What is it you want to communicate to or find out from MF Investor Relations? Is it to tell them you'd like the share price to be higher? They probably know that. Is it because you want to know what the business strategy is? They've told us that, they've explained how they are delivering against it and they're unlikely to release any further strategic information to individual investors. Or do you just want to clutter up Investor Relations' mailbox and distract people from their job?
Thanks for that summary / analysis Espresso. I couldn't join the call, but your analysis sums up why I'm holding.
I would presume directors remain in a share dealing blackout period and therefore cannot buy until the results are out.
I would expect we will be waiting longer, much as I hope otherwise. I'm prepared to wait. The longer term odds seem very much in our favour.