Micro Focus Share Discussion Threads

[phillis] 13/2/2021 11:11

There are no parallels here
Just coincidences

[jw330] 13/2/2021 10:51

I'm currently reading up on the Tennenco investment Charlie Munger made in the 2000s. Seems like a similar situation to this even though it is in a completely different sector.

At the time Tennenco was even more leveraged than this company but because Munger felt confident on the cash flows going through the business he purchased both debt and the shares. Worth a read.

hxxps://www.gurufocus.com/news/1033930/lessons-that-made-charlie-munger-80-million

[planit2] 13/2/2021 10:23

This is the crux of it, the cost cutting will lead to increased margins and a one-off increase in FCF over the next 3 years.
But against that there is the declining revenue which could cause a problem further down the line.

I would have been much happier if the directors were making positive comments about sales having stopped falling or high chances of increasing sales this year or next. Their revenue target seems to be to stop the decline which is a pretty low bar as far as the future of the company goes.
Surely, if the problem was Covid, there will now be a backlog of orders waiting to be released, add to this the increased digital transformation that is taking place and you would think there are loads of potential sales out there.
Like someone said up-thread, it seems like there are lots of companies that have been waiting for the time to get away from Micro and it is hard selling to customers that don't feel they have been treated well in the past.

One extra problem for the next few years is the temporary profit loss when you move over to SAAS as the upfront income reduces. Unbelievably, Micro is also managing to have declining SAAS revenue which seems to defy logic if they are moving platforms over to that model.


SO the main issues are longer term rather than the next couple of years but investors are a daft bunch so I imagine the share price will rise hugely when the increased FCF comes on line irrespective of whether sales are still declining or not.

[purchaseatthetop] 13/2/2021 09:53

mo123.....yes....the FCF seems to get lost in the mists of MCRO recent history.
The essential argument is between:

Bears: is a declining value trap, high debt, dividend reinstated to sweeten the share, and
Bulls: transforming company, debt to be reduced, dividend hugely covered many times by FCF.

Reading the financials and the commentary about H2 2020 and 2021 start, the message seems to be that the transformation is on course and that new revenue streams coming onboard and overall gross margins rising. They cannot provide figures yet.

My call is if the Bears are right the share price will drop 150p. If the Bulls are right then the share will rise 600p. I am strongly with the Bulls and the maths is right for me.

[mo123] 13/2/2021 09:22

I see simplywall.st has FCF for 2022 at 728 and a fairly optimistic 985 for 2023.

[purchaseatthetop] 12/2/2021 18:43

Rising strongly in the USA right now.
Up to $6.54 (was $6.43 when London closed).

Have a lovely lockdown weekend all. PATT out.

[scepticalinvestor] 12/2/2021 16:42

Good weekend all. Even you sr2!

[gurunostradamus] 12/2/2021 15:05

Very sound advice sr2day!

[sr2day] 12/2/2021 14:53

Do not day trade. only those who wish to be mugged.

[purchaseatthetop] 12/2/2021 14:32

OK...back down to 462. Now time to rise again to 477.

[phillis] 12/2/2021 13:42

Put it down to actual experience

[scepticalinvestor] 12/2/2021 13:20

Phillis are you SR2s other half by any chance?

[rochdae] 12/2/2021 13:18

Yes, Phillis, I know perfectly well the difference. The cash generative assets that mcro has deserve a higher price is all. You don't need organic headline growth; what you need is a rising cash balance. Mcro heading for a 40% increase in cash generation with a stable revenue stream. That's good enough for me. And up 150% X 4 on the spreads ... so strategy going OK ..

Nice you calling me rich ... :)

[purchaseatthetop] 12/2/2021 12:34

Livingstone....100% agree. It all depends on whether you buy into the transformation strategy. If you do that then you must wait for the 3 years. I am quite happy to do that.
The downside is that if they do not deliver it the share may languish around 350p.
My average purchase cost is 317p
The upside is that they will rise to 1,500p+ in 3 or 4 years.
The maths works for me both up and down.
Good luck and thinking to all LTH's. There is always risk

[phillis] 12/2/2021 12:29

Roch
It got to to £28 on an aggressive acquisition strategy
I assume you know the difference

Wise counsel from Livingstone

[livingstone20] 12/2/2021 11:51

The above all explains the volatility. The ‘happy path’ of growing revs, margins and accelerated debt repayment and growing dividends is a great ‘best case’ just don’t underestimate how difficult that nirvana may be to achieve. Those talking of instant 10 pound, 12 pounds, 16 pound targets seem likely to be disappointed and disconnected from the accounts. Quarter by quarter progress on slowing and turning decline is likely, in such a geared share, to lead to big swings. Best case to worst case could leave share price anywhere from 700 to 400p next 12 months. Where you set your target depends on what you believe most likely on decline/growth and a price that gives you more upside than downside. There is definitely a case for owning but don’t be too impatient, nor unrealistic on sky high short term targets and keep a really close eye on decline/growth rates. Just my opinion! Always good to hear others.

[rochdae] 12/2/2021 11:46

But it still got to a share price of £28 ... all types of businesses in the market.

[phillis] 12/2/2021 11:29

MCRO is not an organic growth business and never has been

IF you assume it IS ( or MIGHT BE ) then the numbers look very attractive

[stoxx67] 12/2/2021 11:26

its just backtesting the IHS break here

normal upward service resumed shortly

[purchaseatthetop] 12/2/2021 11:05

rochdae...and that is why I look at the leadership team (I hate the word management as they simply maintain status quo) and they are excellent. If they were not and did not have a clear vision that they might be able to deliver then I would not be in the share.
The RNS on figures clearly says that the dividend will be covered by earnings 5 times. Your 50p is spot on.

[rochdae] 12/2/2021 11:00

Yes, purchase ... it's a hard task trying to convince some people. But fcf growth of 40% is amazing if they can do it. Would mean dividends of 50p plus going forward year on year.. That's what the market is designed to value..

[purchaseatthetop] 12/2/2021 10:57

lets do the maths:

EBITDA $1.2b
Multiple of EBITDA on value say times 12
Gross value = $14.4b
less debt (net) $ 3.5b
Enterprise Value $10.9b
Exchange at 1.36 £ 8.0b

Assumption: revenue fall can be reduced and/or compensated with higher GM to maintain EBITDA

Present market cap at 470p = £1.6b
Therefore future share value = 470p * 8/1.6 = 2,350p

OK that is really simple but it clearly shows what the transformation project can produce. Now if MCRO can start GROWING then the value goes skywards.

All IMO only.

[purchaseatthetop] 12/2/2021 10:51

phillis....loads of new growth:

for example: