Sunday, 4 May 2008

Micro Focus Going Great Guns

Micro Focus seems to be going great guns right now. Last week they issued their IMS with revenue and profits for the year now expected to be ahead of expectations. Organic revenue growth is expected to be 15% for the year to $226-$228m. EBITDA margins, at 38.4%, are expected to be slightly higher than the 38% recorded last year.

Micro Focus also launched an all cash offer for NASDAQ listed NetManage valuing the company at $73.3m. NetManage provides application modernisation software and generated a loss before tax of $1.7m on revenues of $36m in 2007. Micro Focus expects to improve NetManage’s margins to something nearer its own (see above) although it expects to take a $10m restructuring charge this year to get it there.

I’ve had a soft spot for Micro Focus since CEO Steve Kelly took me to The Vineyard for lunch last year. It’s not that I can be bought just for the price of a Michelin-starred lunch. It’s more that Kelly and I saw eye-to-eye on what were Micro Focus’ core strengths and that its future rather depended on playing to them – not doing loads of rather distracting other stuff. This had been Micro Focus’ problem before Kelly arrived. The policy has certainly worked so far.

I was a bit concerned when COO Mike Shinya departed. I’ve spoken at length to the parties and am convinced that it was a personality issue – not reflecting deeper problems at Micro Focus. Indeed, the trading performance since then has indicated that to be the case.

NetManage is a bold move but it ‘appears’ to be within Micro Focus ‘core competence’ – ie accepting that old Cobolers never die but they do fade away and have to transition into something new from time to time . NetManage seems to help them do just that.

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