Is Micro Focus International plc a ‘buy’ after it surges 10% on trading statement?

Does Micro Focus International plc (LON:MCRO) (MCRO.L) have investment potential for the long run?

Micro Focus
Micro Focus

The Micro Focus International plc (LON:MCRO) (MCRO.L) share price has climbed by around 10% today after it released a pre-close statement for the six months to 30 April 2018.

The company expects to deliver revenues that are better than previous guidance of minus 9% to minus 12% on a constant currency basis when compared to the same period from the prior year.

While this is positive news, it includes an unusually large licence deal of around $40 million. This was closed earlier than expected, but even excluding it means that revenue was still towards the better end of the guidance range.

Micro Focus has reiterated constant currency revenue guidance for the year to 31 October 2018 of minus 6% to minus 9% versus the comparable period. It expects to achieve an adjusted EBITDA margin percentage of around 37% at the midpoint of the revenue guidance range.

Net debt is expected to improve to around $4.2 billion in the current year, while DSOs remain elevated in the short term.

In my view, further volatility could be ahead for the Micro Focus share price in the near term. The company seems to be making progress with its turnaround – even with the large licence deal excluded from its first half results. However, with sales due to fall in the current year, it may take time for investor sentiment to pick up.

Clearly, it has been a hugely challenging period for the company. In my view, there is a sound underlying business in place which has the potential to deliver improving financial performance over the long run.

As a result, I believe there is turnaround potential on offer. While it could prove to be a relatively risky share, Micro Focus may also offer high reward prospects over the long run. Therefore, I’m relatively optimistic about its investment potential following today’s trading update.

About Robert Stephens 3395 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email or use one of the other contact methods available on the 'Contact Us' page