Helal Miah, investment research analyst at The Share Centre, outlines why IT software producer Micro-Focus International is share of the week this week:
Micro Focus International produces software products which helps its customers, mostly large companies, to improve the efficiency of their IT systems and helps them integrate new software applications with older ones.
It’s an exciting time for the group given the eagerly awaited acquisition of Hewlett Packard software assets (HPE), a purchase which will be one of Britain’s biggest ever technology deals. In an update last week, Micro Focus confirmed that the takeover is due to complete on 1 September this year and will return $500m to shareholders. There is significant potential for growth in earnings as a result of the merger. Moreover, the scale of the deal reduces the risk level for investors and should boost dividends in due course.
Interested investors may want to note that other recent acquisitions, such as Attachmate, have given Micro Focus access to more markets around the world, which could significantly boost earnings and will provide a large stream of recurring revenues. In addition, the increasing presence of high-profile hacking incidents, such as the global Wannacry ransomware attack, may increase demand for the type of cybersecurity software products which the company provides.
In regards to the numbers reported of late, the group stated recently that despite a 0.9% fall in revenue to $1.38bn, which investors should appreciate was within the range of previous guidance, adjusted earnings rose 20% to $640.9m. Cash generation improved during the year and net debt was down, which helped the company to lift dividends by an impressive 32% for the year.
Due to the potential boost from HPE, and other recent acquisitions, along with the healthy dividends and the group's exposure to a wide geographic spread of regions, we continue to recommend Micro Focus International as a ‘buy’ for medium risk investors with a balanced portfolio.