Micro Focus (MCRO) shares tumble as company cuts guidance

The software giant is also undertaking a strategic review following a more conservative customer approach to sales.

Article updated: 29 August 2019 11:00am Author: Ian Forrest

  • Customers taking a more conservative approach pressurised annual sales more aggressively than previously forecast.
  • Shares drop 30% in early trading, wiping over £1b off its market capitalisation.
  • Level of uncertainty around the company’s performance sees our ‘Hold’ recommendation under review.

The software giant gave the market a shock this morning by announcing a cut in its full-year sales guidance and the start of a strategic review. In a fairly brief statement the company said customers were taking longer to make decisions and this more conservative approach to sales meant it now expected revenues to fall by 6-8% rather than the 4-6% previously expected.

The words “strategic review” rarely spell good news for investors so it wasn’t surprising to see the shares respond with a drop of 30% in early trading. It isn’t the first time in recent history the shares have fallen sharply, as they did much the same in March last year when the company revealed problems with the integration of the HPE assets recently acquired. HPE was not directly mentioned today but it may well be part of the issue as the company said in July the integration process was proving “complex and significant”.

While the big drop in the shares is troubling for investors it should be noted they recovered quite steadily after last year’s warning. However, many investors will now be losing faith and wondering what impact all of this may have on future dividend payments.

Our view on Micro Focus - Hold

Given the level of uncertainty now around the company’s performance our ‘Hold’ recommendation is under review.

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Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.