Member Info for QuinVestor

The CEO well understands the true potential value of the company. The execs previously signed up to an incentive plan which (IIRC) required them to grow the SP from £20+ to £30+. If the revenue growth actions now coming through (AWS partnership, OPTIC, Vertica investment etc.) do deliver the sort of revenue growth we might reasonably expect, its starting to look like the funamentals may then be aligned with their previous targets.

It would seem very odd for the long-term institutional investors to be willing to sell out for only £8ish when the company has potential to deliver share prices closer to £30. Particularly so when it's starting to look like things are going to plan. Of course there are many traders and short term investors who would take a quick profit, but are they really reflective of the investor base?

The issue is addressed in note 30 to the October 2020 accounts (p217). Provision and disclosure will have been subject to considerable scrutiny by the auditors.

US courts do seem to have quite a history of (IMHO) ludicrous jury decisions and awards in patent infringement cases. It seems not uncommon for them to be overturned by the judge or by a higher court. Some would view having to deal with this sort of stuff as a 'normal' cost of doing business in the US.

https://dilbert.com/strip/2013-02-26

So in mid-late 2017, the SP was £25+. based on forecast revenue decline of 2 - 4% p.a (management incentives were, IIRC, based on a target SP of £32). A (10%) 'material impact on revenues' would move revenue from decline to growth. Add to that MF's recent success in securing debt to 2024, reducing debt, stabilising the business, largely completing the HP integration, being up-and-running (half the business) on the new technology stack, driving out cost and keeping a steady course (with further cost saving) during COVID. I won't be selling at £8.

My expectation is a gradual climb back up (with a fair bit of volatility on the way). That's pretty much what happened after the March 2018 plummet back up to the July 2019 peak (before the profit warning). Things that would help along the way though: improved interim trading results to 30 April 2021; successful cutover to the new IT systems for the reamaining part of the business; any credible whiff of takeover plans (hopefully unsuccessful) and perhaps media coverage of the 'Snowflake-like' potential of Vertica.

Much as it would be nice to see my losses reversed, I'm in no particular rush.

They've set out their plan quite clearly. They're delivering on it. The last thing that's needed is 'spin doctors' taking over. The leadership seems to have a good focus on strategic areas which can deliver growth, as well as arresting the decline in products which don't offer good growth potential. Then they will grow margins through further cost cutting (which they have a track record of delivering). The leadership has a strong customer focus and it's customers who will provide the revenue that will ultimately drive the share price. I'm (reasonably) confident that strategy will, in due course, deliver.

Shorter term, more good news about the roll-out of the new common systems would be excellent. Further director purchases might be a bit of a morale boost (are they out of the insider dealing 'blackout period'? I don't know). If you want razzamataz though, go and invest in Elon Musk, or Bitcoin, or whatever the thing of the moment is.

Pandamonia. I don't believe there is any tax deduction available for the goodwill impairment. If you look at note to the interim results (Note 4, P 48), which reconciles book loss x UK CT rate of 19% to the actual tax charge accounted for, you will see the (non-deductibility of) the goodwill impairment as an item reducing the tax credit.

Tax accounting aside though, I agree with your sentiment that the (book) write-down of goodwill should not significantly affect longer term shareholder value, and that MF's current share price significantly undervalues the group. I won't be selling any time soon.

Ah, yep, I see the link to 'thebhoys' earlier comment now. Thanks for clarifying MTB.

The point I am making about the goodwill impairment is that is is not based on the management's subjective assessment of the value of the business. It is driven by accounting standards, (presumably) by their auditor's view of the application of those standards and by the (mechanistic) valuation model applied (as described in the note to the prelims). As you say, there's no guarantee that it will be the last write-down either. However I'm far from convinced that there's much of a link between the goodwill carrying amount on the balance sheet and shareholder value.

Well "we all make mistakes" isn't the point I was trying to make. The mistakes (+Covid impact) are presumably the reason we have been able to buy for £2 / £5 / £8 / £12 or whatever instead of £25+.

And the $2.9bn write-off most certainly can 'lie' (or rather 'mislead'). Note 7 (p 51, 52) of the preliminary results explains how the goodwill impairment is arrived at; seemingly based on fairly mechanical projections which are based largely (but not entirely) on recent historic performance. It seems in effect it compounds the impact of recent downturn, part integration ****-up based and part C19 environment based. It's up to us to make the call as to whether it therefore represents a fair long term assessment of lost value. I'm betting it does not.

I'm not trying to be relentlessly bullish here, or to excuse what MF have clearly got wrong. I just don't think it's a given that they did massively overpay for HPE. What we're seeing now could of course be a reflection of their having done so or it could be driven more by integration woes and C19 customer behaviours. We'll see.

I'm not sure they did **** up on the HPE deal. What they did **** up is the first attempt at HPE integration. Signs seem to be they are getting it right now though. They seem (now) to be making a point of doing it right rather than doing it fast, which I like. That they have done so during all the issues C19 and the economic turmoil that has brought is particularly encouranging.

Well put chaps. Yes, and in terms of direction, they seem not just to have 'steadied the ship' after the HPE merger, but also to be making a success of properly integrating the businesses. Not just the HPE integration either, but properly integrating previous acquisitions too. That seems to be showing in cost savings but also has the potential to improve the sales process (which is part of their strategic plan).

One of the pieces of news I was waiting for was confirmation they had gone live on their new IT stack (go-live having been delayed a number of times). The results confirmed that part of the business ("a significant number of employees") is now live on the new systems. How much or the business, to what extent and with what pain is not yet enirely clear. The investor presentation did state that "first phase of user migration is now complete", which could mean they've put the non-HPE sides of the business onto the new system. Whatever the extent though, at least it sounds like they haven't had to switch-off and retreat to the old systems. If that's right, that's great news. Not least as it means they will once again have the chance to buy unloved bits of other IT businesses on the cheap and put them onto the platforms and processes they have built.

I'm not planning on selling up any time soon and don't really care what the share price is doing on a day-to-day basis either. Wake me up (briefly) when the 2021 interim trading results are in and then let's see where we are this time next year.

I disagree. That would seem like short term capitalisation of hype. Part of the untapped value here is in the breadth of the product portfolio and MF's (eventual) ability to cross sell. It's a bit like the supermarket, where customers may visit to pick up their groceries but emerge with a 'special' or a 'treat' item (or maybe the other way round). Meanwhile all the supplier side processes are being handled by an increasingly effective, efficient, cost cutting organisation.

It may be that our perspectives as investors differ though. Some will want a quick price rise so they can bag their trading profits. I will be happy with steady(ish) progression back to a price which reflects the true value, current and potential, here. Maybe we can have a bit of both :-)

See page 7 of the 2020 Interim Report (on the MF Investor Relations website) for an analysis of revenue by stream. I'm not sure margins by sector are disclosed though. They will anyway vary according to sales volume as (for example) the marginal costs of an additional software licence sale are minimal, whereas consulting costs are presumably proportional to revenue.

"The drop" (the goodwill impairment) was in the 2020 interims, not the 2019 annual results.

MBUK. The goodwill write-down was accounted for as 'administrative expenses - exceptional items' (P24) and detailed in Notes 7 and 11 of the 2020 Interim Results.

What's the basis for your 10x / 20x valuations? 10 x the current SP would put the SP at roughly double that before the summer 2019 plunge. I do believe the share is currently significantly undervalued, but I will take some convincing your comments there are in any way credible.

Re: "Have they actually made a statement about wanting to reinstate the dividend?"

In the Interim Results presentation (7 July 2020, See investor relations site), they stated: "It is the Board’s intention to propose a final dividend in relation to the current financial year, if it is prudent to do so within the context of our business performance and the macro economic environment."

It will be interesting to see who the replacement is. The last three or so years seemed to have been about stabilising the balance sheet and the group's systems, whilst delivering improved operational effectiveness. I wonder if they're moving beyond that at looking at more of a deal doing CFO. Back towards Loosemoore's 'click and repeat' acquistions-based growth model? Maybe that's wishful thinking on my part though.

"What does it take for MCRO to make gains?"

In my view:
- Another half-year of decent sale figures under the belt, combined with decent sales projections, and
- Confirmation that go-live of the single set of core systems has (mostly) worked for the parts of the business going live shortly.

So that may suggest the next half year results could be the big trigger point. Of course other catalysts, such as the restoration of a dividend, or even just some sensible analysts' articles may also help the SP on its way back.