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I don't want 'spin', positive or otherwise. And to be fair to Stephen Murdoch, he doesn't really do 'spin'. I want to see that the turnaround plan is working, that 'Stack C' is (reasonably) stable and delivering against objectives and that the deficiencies in the sales function are being addressed. Something other than bad news on cash flow would also be nice, though I'm not feeling particularly optimistic on that; I hope I'm wrong.
Hmm. Are we really expecting good news with the results announcement? One might think that the reason for a cash generating business sale may be that operational cash generation is not hitting target. Whilst I remain long term optimistic , I'm expecting to have to wait somewhat longer. I hope I'm wrong.
I think that could be another way of saying this could be a low point in the company's results.
But yes, I am optimistic longer term and believe most negative sentiment is already likely to be refected in current pricing. A bit of a shareprice wobble still wouldn't surprise me, but if the company is continuing to deliver on plans, there's a very big upside to come.
October is certainly an important month, when there's a big push to close deals and collect cash. I'm not expecting much joy this year though. Watching the SP will nevertheless be interesting . There's so much doubt already factored in to the price that I'm not sure another set of underwhelming results will impact for long. We'll see. The more interesting question is how much things will improve over the coming year. I remain optimistic on that one. My feel is that the ship has been stabilised, infrastructure and processes transformed and that the company is therefore well positioned to turn sales around and restore cash flow over the next 12 months.
I've been following and investing long before that Blubutton and am obviously not thrilled at the losses I am carrying. However Murdoch seems to have been pretty realistic in what it would be possible to turnaround in what timescale and seems to have been delivering what he said he would. I don't expect 'magic beans', just the steady progress needed to restore investor confidence. I expect that will be delivered.
I'm not sure I understand the anti-Murdoch sentiment that some are expressing here. He seems to be delivering pretty much what he told us he planned to deliver. Under his leadership, the company seems back on course. Once 'seems to' becomes 'has consistently delivered results', I would expect the SP to be back to where it should be (£20+) too.
Oh and the $2.8bn goodwill impairment (write down) was just the exceptional anount of the write down of book assets. There was a further $0.67bn of asset value written down as normal amortisation of purchased intangibles (Note 11 to the 2020 accounts)
BD. I presume you're looking at the results for the year to 31 October 2020, rather than the recently announced half year results? The loss you refer to results (materially) from a $2.8bn write down of the book value of purchased goodwill, in accordance with accounting standards. It does not impact on cash generated by the business. See notes 4 and 10 to the 2020 accounts.
I don't want a CEO with showbiz charisma. I want one who will set out what he is going to do to return the company to (very) substantial, sustainable profit and cash generation and then who delivers decent year-on-year progress against that. That's what Murdoch seems to be delivering (in contrast to Chris Hsu).
Oh, and I also suspect most major customers will take a similar view.
and I realise I should have typed "£20-30 upwards".
The SP targets two years or so ago were before MF's relevance in the cloud world was confirmed by the AWS and Snowflake deals. And before Snowflake demonstrated the huge value of (Vertica style) analytics capability.
Why the hell would the board accept a £6.50 offer? The share was previously trading at over £20 when the company's position was less secure than it is now. The exec were then signed up to an incentive plan which, IIRC, paid out if the share price was somewhat above £30. £6.50 tomorrow or £20-£30 in two years time. Which do you think they'd take?
If you want hype, spin and showbiz, you're investing in the wrong company. MF and Murdoch have set out what they are going to do and so far, they've been delivering stady progress on that, doing just what they said they would. As expected, there wasn't much new in today's call, just some more 'resolution'. My two main takeaways were:
- The new single stack of systems and processes are now in use across the whole group (a huge result) though it is expected to take 6 - 9 months for this to settle down in the (ex HPE) side of the group, before synergies, efficiencies and savings really kick in.
- AWS revenues are not really expected to have a major impact until the later part of next year. Whilst that's longer than I expected, that at least kills the idea that current results are including the AWS effect, so hopefully good growth to come there.
I ain't selling.
I think much of the hard work on intergration is already done. Also I'm not sure that MCRO's difficulties stemmed either from the MF-side of Finance or from any 'Mr IT whizz'. CFO. The big problems seem to have been with the hastily implemented systems which the HPE spin-out side of the business arrived with, combined with challenges around integration of the sales functions and the retention issues which surrounded that. What will be interesting is how the new FD steers the business from the tail end of integration towards expansion and (I would imagine) acquisition.
I broadly agree AIMOK, aside from using cash generated for share buy-backs. That's basically saying that investors should be able to generate better returns with the cash than the Board expect to manage. I'd rather see surplus funds used for carefully targeted acquisitions.
I particularly like this one as it's a powerful demonstration of MF's customer business case. Gargantuan public sector IT projects often cost huge amounts and fail. Imagine the potential cost, human cost and political fall-out of breaking the benefits and pensions payment system for 20 million people. Instead, working with MF to transition the systems to AWS seems to have managed the failure risk, successfully delivered a much better system and generated a positive NPV.
Nuri. During the earlier part of 2017, revenue guidance was from zero to minus 2%. The share price was then £25ish. You are telling us that MF now has to significantly outperform that in order to keep the price above £4. Please explain.
"The company should be pumping the old PR machine at this point "
I respectfully disagree. MF doesn't really do 'spin' and that certainly doesn't seem to be in Murdoch's nature either. Steady progress is what will turn market opinion around. Hopefully in due course we'll get confirmation on progress on sales, progress on core process and systems roll-out and progress on cost cutting. Shareholder PR doesn't really help us other than in the very short term.
and of course even at the below market pricing rates offered, the debt offer was substantially oversubscibed:
"In May 2020, the Group successfully refinanced its $1.4bn term loan due for repayment in November 2021. The successful completion of this refinancing was particularly pleasing given the strong demand for the Group’s debt, at a time of significant macro-economic uncertainty. The offering was substantially oversubscribed with approximately $2.5bn in the order book at closing." [Taken from 2020 preliminary results announcement]
Given the lead time for large IT contracts to be concluded, I'm not sure we should reasonably expect much additional Amazon-driven business to have flowed through to invoiced revenue by the end of April. I suppose though the news may accelerate some buying decisions which might otherwise been even more protracted.
Pandamonia. Thank you for that. I think that's overall a pretty good analysis (though I've not 'audited' your numbers) and I concur with your overall views on MCRO. The one point I would challenge is your point about up-front recognition of licence fees for multi-year contracts. I don't believe that's how the relevant accounting standard (IFRS 15) works. Instead my understanding is that revenues must be recognised over the duration of a contract to match the 'performance obligations' under it. That's a bit of an oversimplification, but it would be wrong to think that (for example) five years' revenue for a five year contract would all be booked in year 1.
Your contrasting of the business cultures of the two sides of the merged organisation is interesting and I believe right on point. I think their respective agility is also an important part of that. MF seems sometimes to be run almost like an SME (I exaggerate for effect). Decisions get made in a modest sized building behind Waitrose in small UK market town and then they are acted on. HPE came out of the Leviathan of HP, where it seems issues could go round and round in bureaucratic circles for years before they got acted on, if they ever were. Mixing my nautical metaphors, it was the proverbial supertanker, but without a direct link from bridge to rudder. Obviously the legacy MF culture hasn't continued entirely unchanged in the merged organisation, but I think it is fairly clear MF has brought much more agility to HPE. That seems pretty damned relevant in the times we are living in.
I agree with your Bull case and would add that, assuming it plays out broadly as planned, the implementation of common core systems should have further positive impact both on revenues and costs. Add to that what we're discovering about some of the assets MCRO seems to have bought 'on the cheap', which are starting to look like they're a lot more relevant to the world we're in than some might previously have thought. Then, once the systems are bedded in, there's what they can then do with more unloved software assets that can be bought on the cheap.
Anyway, thanks for your thoughtful analysis. Please do keep your thoughts coming. They are a refreshing change from the "I bet we'll be at £5.XX by teatime" stuff :-) And I'd likewise be interested in the more detailed thoughts of those with dissenting views, hopefully getting deeper than "big debt" and "failed HPE acquisition" one-liners.