Broker snap: Stunning Micro Focus

9th Dec 2009 11:10

Legacy software specialist Micro Focus has been flagging for some months now how well its recent acquisitions have been performing but this morning's better than expected contribution from Borland and Compuware still caught the market a little by surprise.'Micro Focus has performed stunningly in turning Borland and Compuware around, taking two underperforming businesses (Borland loss making, Compuware 7% operating margin) and getting them to a combined 35% EBITDA [earnings before interest, tax, depreciation and amortisation] margin in six months,' enthuses Charles Stanley analyst Ian Mitchelll. Mitchell thinks there is more juice to be squeezed from these additions to the Micro Focus portfolio with 'further cost cutting and potential cross selling' on the agenda.Mitchell was also impressed that the core business remained on a generally even keel, despite management focusing its attention on turning around its new purchases. 'With the exception of OEM [original equipment manufacturer] revenues, which are outside management's control, the business performed in line with our original expectations,' Mitchell states, adding that 'Crucially, the pipeline for licence sales in H2 [second half] is strong, driven by higher value application modernisation deals and stabilisation of OEM revenues.'The broker is upgrading its forecasts, and is now predicting full year EBITDA of $166m for fiscal 2010, up from $160m previously. Its price target remains unchanged at 570p.