Micro Focus and Restaurant Group

Thursday, February 14, 2019 - 10:01

“The pharmaceutical sector was the principal driver of the FTSE 100 on Thursday with the blue-chip index rising 0.2% to 7,206. AstraZeneca was the star of the show amid positive financial results. “Markets were also strong in other parts of Europe although Asia didn’t share the Valentine Day’s joy where screens, rather than roses, were flashing red. Investors seemed a tad nervous as trade tensions escalated between the US and China,” says Russ Mould, Investment Director at AJ Bell.

Micro Focus

“It was inevitable that the integration of an £7bn acquisition would be complicated and so it proved for Micro Focus with its reverse takeover of Hewlett Packard Enterprise’s software business.

“After a very damaging profit warning and a change of chief executive, the company is at last showing signs of putting the whole sorry episode behind it.

“Micro Focus had a well-earned reputation as a stock market cash machine in the first part of this decade. It returned some 600p per share in ordinary and special dividends between 2011 and 2017, prior to the HPE deal.

“Today’s full year results show some signs it can regain its credibility with investors in this regard as both cash flow, debt and revenue come in better than expected, the dividend is hiked and its share buyback scheme is extended.

“Although it is a technology company, what Micro Focus does is fairly simple, even prosaic, but it has also proved very lucrative over time.

“Essentially it helps refresh legacy IT systems for large organisations to make them fit for purpose in meeting the challenges posed by developments in areas such as cloud computing and e-commerce.”

Restaurant Group

“What an unfortunate outcome for Restaurant Group. Losing its chief executive at such a crucial point in its recovery story is devastating for shareholders who have already gone through hell over the past few years.

“While we don’t know the full story as to why Andy McCue has resigned beyond it being for personal reasons, the news will rock the ship once more at Restaurant Group.

“The company has yet to convince the market that its pricey acquisition of Wagamama was a good idea, let alone prove that the rest of its estate still has a decent future.

“A lot of effort has gone in to improving menus (or rather fixing them after it mucked up them up a few years ago), getting food to customers’ tables faster, and putting a bit of spice back in its seemingly-tired brands.

“A trading update in January would suggest this effort hasn’t been enough with a decline in like-for-like sales, albeit the broader sector has also been struggling.

“There is a risk, or an opportunity depending on how you view it, that McCue’s replacement will want to tear up the recovery plan and make some more radical changes. Whoever takes the top seat will definitely need some bright ideas to get this one-time leisure sector superstar back on track.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.