Micro Focus suffers £1.7bn wipeout over sales shock
Britain’s second-biggest listed tech group may fall out of FTSE 100 as weak revenues lead to warning
ALMOST £1.7bn was wiped off the value of Micro Focus yesterday after Britain’s second-biggest listed tech company issued a profit warning that could trigger its ejection from the FTSE 100 next week and pave the way for a possible sale or break-up.
Micro Focus shares slumped by almost a third after a shock trading update slashed revenue forecasts and announced a management review.
The Newbury-headquartered software firm could be axed from the leading blue-chip index after falling as low as 118th place on the list of the UK’S largest listed companies.
At one stage, the share price fell as low as £3.5bn, below Marks & Spencer, before recovering to about £3.9bn.
If Micro Focus falls below 110th place, it faces being automatically removed from the FTSE 100 in the quarterly shake-up of firms that is due to take place on Sept 3. Its shares closed down 504p at £10.51.
In the unexpected trading update, Micro Focus slashed its revenue forecasts for the 12 months ending in October from a fall of 4pc-6pc to minus 6pc-8pc, dashing optimism that a troubled patch for the firm was behind it.
It added that a “highly challenging percentage of [its sales] pipeline” would need to close in order to meet the top end of its guidance.
Micro Focus, which sells and licences ageing software technology to businesses, has struggled with the integration of a deal to acquire US technology giant HP’S software business for $8.8bn in 2017.
The fallout of the deal saw the departure of senior executives, including its new chief executive in March last year, an exodus of sales staff and IT problems.
The company said yesterday its recent performance had been hampered by “weak sales execution… compounded by a deteriorating macro environment”.
More than £1bn was wiped from Micro Focus’ value on the news. It comes weeks after Kevin Loosemore, the executive chairman, sold around £11.6m worth of shares.
Stephen Murdoch, Micro Focus chief executive, added it would now embark on a strategic review of its business, including “strategic, operational and financial alternatives”.
The review is understood to leave all options open, and could even lead to executives considering taking the company private, while other options such as further major M&A deals or disposals could be looked at.
Investors were left speculating about the firm’s future direction. Sources close to the company pointed to continuing woes with sales at legacy HP sections of the business as the reason for its profit warning.
Micro Focus entered the FTSE 100 in September 2016 after years of strong returns for shareholders under Mr Murdoch and Mr Loosemore. It has grown its business through software M&A deals, buying up companies and integrating them while cutting costs.
But its shares have proved volatile since its merger with HP’S software arm, falling nearly 50pc in one day in March 2018 after Chris Hsu, the new chief executive of the business and former HP operations head, left suddenly.
The firm has come under pressure from New York activist fund Elliott, which led it to sell one of its software divisions for $2.5bn in July last year. Elliott has since sold off all its stake.
Last month, it reported revenues of $1.66bn over the previous six months.
“Whilst the review is taking place, management will continue to drive previously targeted improvements in business performance,” Murdoch said.
Analysts said the firm’s revenues had deteriorated below more optimistic guidance in the second half of the year. Numis said the second half of the year could have seen a fall of between 7pc to to 10pc due to poor licence performance. Barclays analysts added the plans for a review suggested “all options will be on the table”.