Friday newspaper share tips: Micro Focus

9th Sep 2016 11:28

(ShareCast News) - Micro Focus will need to act quickly to convince investors that its purchase of Hewlett Packard Enterprises's software division was not ill-judged, the Financial Times's Lex column said.The company is well-versed in the trick of picking up windfallen apples and wiping off the mud, but its new acquisition generates nearly twice as much in sales as it does and nearly as much earnings before interest, tax, depreciation and amortisation.Management is confident it can boost the HPE unit's editda margins up the level of its own.Yet while the share price zoomed higher over the past three years, its return on capital employed was going the other way, Lex pointed out.As of June it had dipped into single digits whereas until a couple of years ago it easily exceeded 30%.Net debt is also set to more than triple next year's ebitda.So while even a conservative estimate of how far its margins can be improved would see Micro Focus's profits double, "Mr Loosemore must find his low-hanging fruit on costs quickly. Otherwise, his company is starting to look bloated," Lex said. Micro Focus is a risky bet which could swing either way, according to The Times's Tempus column.Fresh off the back of its acquisition of Hewlett Packard's software unit, much of the evidence points towards the shares continuing their upward trajectory, writes Patrick Hosking.The company have had success in the past with similar mergers on a smaller scale, which have boosted its standing and share price.The stock surged 15% after news of the HP deal broke on Thursday, in a sign that investors are more than willing to back executive chairman Kevin Loosemore's ambitious plans, but Hosking isn't so sure."The size and complexity of the deal, the lengthy time frame and the pedigre of some of the purchased assets" are all doubts that should not be overlooked.He points out that in some of the assets bought via HP "were contained in one of the most regretted deals in recent technology history - Hewlett Packard's acquisition of Autonomy."Loosemore seems to be going on a solo run and Hosking admits that it may not be the wisest move.'Sell' was the advice from Tempus.