Out Of Focus

Microfocus issues increased profit warning

Image source: Paradise studio, Brian A Jackson - Shutterstock

What's going on?

Troubled UK tech giant Micro Focus’s woes continued on Thursday as it warned investors that 2019 sales would be significantly lower than expected – and they promptly sold the company’s stock down 32%.

What does this mean?

Micro Focus specializes in buying aging computer software – still crucial at legacy companies like banks – and making the business more profitable by cutting costs. But Britain’s largest technology company (yep, really) has struggled in recent years. It quadrupled in size back in 2017, spending $9 billion on parts of Hewlett Packard Enterprise in the hope it could improve profits. But as with a previous deal that went awry in 2011, things haven’t exactly turned out that way…

After repeatedly chalking up disappointing earnings of late, Micro Focus has now issued an increased profit warning for 2019, blaming an uncertain economic environment. It’s predicting overall revenue will come in 6-8% lower than last year.

Why should I care?

For markets: Changing places.
Micro Focus is now worth $1.5 billion less than it was on Wednesday. So while the tech giant is promising an overhaul of its business, it’s nonetheless likely to drop out of the FTSE 100 – the index comprising the UK’s biggest public firms – in a quarterly reshuffle next week. Beleaguered retailer Marks & Spencer, which escaped the chop last time around, is also set to be relegated for the first time ever.

The bigger picture: Sore footsies?
Recent political maneuvering in the UK increases the likelihood that the country will leave the European Union without an exit deal in October. The FTSE 100 rose on Wednesday, as a subsequently weaker British pound makes these companies’ overseas earnings worth more back home. But the value of the smaller FTSE 250 index, more dependent on the UK economy, fell. One investor who won’t have to worry as much about Micro Focus’s new home, however, is its executive chairman: he sold more than half his shares in the company last month…

Originally posted as part of the Finimize daily email.

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