Remove ads

Introducing the LemonFools Personal Finance Calculators

Microfocus an HYP share?

Practical discussions about equity High-Yield Portfolios (HYP) for income
Forum rules
Tight HYP discussions only please - OT please discuss in strategies
NorwichFool
Posts: 16
Joined: December 15th, 2016, 10:32 am
Has thanked: 15 times
Been thanked: 6 times

Microfocus an HYP share?

#198445

Postby NorwichFool » February 2nd, 2019, 6:43 pm

Thinking of ways to diversify my HYP away from miners, oil and finance.

MRCO is forecast to yield around 5.5% with 1.9 cover.

The share price crashed 54% from over 2000p to under 1000p to last March after reporting this:

" The company now expects revenue for the year ending October 31 to fall between 6% and 9%, down from its previous guidance for declines of 2% to 4%. Revenues were hit by problems stemming from its purchase of Hewlett Packard Enterprise software assets in September 2017."

Share price has since then recovered to almost 1500p. I'm bewildered by the scale of the share price crash last March.

Seems like a good company with rising profits, good yield and excellent history of raising divis.

I'd be very interested in people's opinions on this one.

Norwichfool

TheMotorcycleBoy
Lemon Quarter
Posts: 1756
Joined: March 7th, 2018, 8:14 pm
Has thanked: 1000 times
Been thanked: 137 times

Re: Microfocus an HYP share?

#198464

Postby TheMotorcycleBoy » February 2nd, 2019, 7:57 pm

I don't have any MCRO, but I did analyse them once. I didn't like the look of them at all. They are an unashamedly serial acquirer of software entities, with no purpose or particular product as far as I could ascertain.

Furthermore due to the acquisitive nature, their books are hard to study, so they are difficult to value. I guess their stocks descent last year was due to the latest acquisition being misguided?

Perhaps they might be ok as a divi payer, but they seemed (to me) to be just too much of an unknown quantity for me to put money on.

Matt

idpickering
Lemon Quarter
Posts: 4165
Joined: November 4th, 2016, 5:04 pm
Has thanked: 590 times
Been thanked: 1276 times

Re: Microfocus an HYP share?

#198495

Postby idpickering » February 3rd, 2019, 6:30 am

I agree with you TheMotorcycleBoy. For me my chosen shares are well known and hopefully reliable dividend paying shares. There is no need to buy relative unknowns just for the sake of diversification. But each to their own.

Ian.

Itsallaguess
Lemon Quarter
Posts: 3498
Joined: November 4th, 2016, 1:16 pm
Has thanked: 1135 times
Been thanked: 2138 times

Re: Microfocus an HYP share?

#198497

Postby Itsallaguess » February 3rd, 2019, 7:15 am

NorwichFool wrote:
I'd be very interested in people's opinions on this one.


Probably my best total-return performance when fishing in the lower-cap pool - certainly beating my other good performer in the same market-cap-arena, which is Smith (DS), and that's been no slouch either, as any owners will know...

Bought in 2010, and had considerably multi-bagged by the time I sold half in March 2017. I continue to hold the remainder in my HYP.

It's a niche-player in a specific market, but has had a long history of paying out large special dividends as well as it's normal distributions. To say that I'm carrying my current holding for free would be a huge understatement....

Not sure if I'd be able to recommend it as a buy now, at this stage of it's development. A lot of that would depend on the make-up of any given HYP to be honest, as I think this sort of share becomes interesting when we've got well-established diversified portfolios already, and we might begin to look at lower-cap total-return types of income-providers, and whilst MCRO will always be susceptible to a larger-fish takeover, I think the best years of it's more pacy/growthy development-aspects may be behind it now...

Both MCRO and SMDS showed me that lower market-cap income-shares can play a large part in our portfolios once they've established a broader mega-cap base, and can often provide a great long-term story from really quite tiny starts, and I continue to look out for similar yield-stories from the lower-cap area of the market....

Cheers,

Itsallaguess

OZYU
2 Lemon pips
Posts: 199
Joined: December 31st, 2016, 3:52 pm
Has thanked: 43 times
Been thanked: 137 times

Re: Microfocus an HYP share?

#198509

Postby OZYU » February 3rd, 2019, 8:52 am

Itsallaguess wrote:
NorwichFool wrote:
I'd be very interested in people's opinions on this one.


Probably my best total-return performance when fishing in the lower-cap pool - certainly beating my other good performer in the same market-cap-arena, which is Smith (DS), and that's been no slouch either, as any owners will know...

Bought in 2010, and had considerably multi-bagged by the time I sold half in March 2017. I continue to hold the remainder in my HYP.

It's a niche-player in a specific market, but has had a long history of paying out large special dividends as well as it's normal distributions. To say that I'm carrying my current holding for free would be a huge understatement....

Not sure if I'd be able to recommend it as a buy now, at this stage of it's development. A lot of that would depend on the make-up of any given HYP to be honest, as I think this sort of share becomes interesting when we've got well-established diversified portfolios already, and we might begin to look at lower-cap total-return types of income-providers, and whilst MCRO will always be susceptible to a larger-fish takeover, I think the best years of it's more pacy/growthy development-aspects may be behind it now...

Both MCRO and SMDS showed me that lower market-cap income-shares can play a large part in our portfolios once they've established a broader mega-cap base, and can often provide a great long-term story from really quite tiny starts, and I continue to look out for similar yield-stories from the lower-cap area of the market....

Cheers,

Itsallaguess


I hold both and topped up SMDS recently. My fishing in lower caps( 27% of that particular portfolio today) is the main reason my ISAhyp( note lower case, not uppercase) has performed so well since the rolling 12-months divi income, all reinvested since the beginning of PEPs, exceeded £75k at close on Friday for the first time. I do not believe at all in safety in the elephants at portfolio level, for many of the so called stalwarts which I hold, as one does out of habit I suppose, I consider we would have been much richer if I had never heard of them( GSK being a prime example, there are a few others). This particular portfolio has a slightly lower volatility than the FTSE and has trounced it. I do acknowledge that lower caps individually will be more volatile and require more research and ‘guts’ on the part of the owner. There will be more occasional near total losses, but nearly all my multi baggers/ exceptional xirr’s come from the lower orders in the cap range. You need to hold enough, not just the odd one, for the method to work imho. It is NOT LTBH, you need to be prepared to change tack at certain times, and find key times to recycle surplus capital into divis, after all TJH does the same thing in that respect, but I am much less systematic about it.

Not for all, but works for me, and many of my investor old mates. Useless for the retiree taking/needing all income, of course, but well worth considering for the young pot builder imho.

Ozyu

And boy would I swap this wealth for better health any day!

Itsallaguess
Lemon Quarter
Posts: 3498
Joined: November 4th, 2016, 1:16 pm
Has thanked: 1135 times
Been thanked: 2138 times

Re: Microfocus an HYP share?

#198514

Postby Itsallaguess » February 3rd, 2019, 9:09 am

OZYU wrote:
I hold both and topped up SMDS recently. My fishing in lower caps( 27% of that particular portfolio today) is the main reason my ISAhyp( note lower case, not uppercase) has performed so well since the rolling 12-months divi income, all reinvested since the beginning of PEPs, exceeded £75k at close on Friday for the first time.

I do not believe at all in safety in the elephants at portfolio level, for many of the so called stalwarts which I hold, as one does out of habit I suppose, I consider we would have been much richer if I had never heard of them( GSK being a prime example, there are a few others).


Absolutely Ozyu - as anyone with holdings in BATS or IMB will know well enough when they look at the five-year charts -

British American Tobacco - https://yhoo.it/2TxI7cE

Imperial Brands - https://yhoo.it/2UAK8or

There's absolutely no guaranteed safety in mega-caps, and I say that as an owner of both of the above shares, and there are other similar mega-cap stories, of course...


OZYU wrote:
There will be more occasional near total losses [with these types of lower-cap purchases], but nearly all my multi baggers/ exceptional xirr’s come from the lower orders in the cap range. You need to hold enough, not just the odd one, for the method to work imho.

It is NOT LTBH, you need to be prepared to change tack at certain times, and find key times to recycle surplus capital into divis


Definitely - and that's why I sold half of my holding nearly two years ago - I considered that the company had run it's fastest laps, and whilst it was still paying out a relatively good yield, I wanted to diversify-away some of the large capital growth, as well as some of the income, into other areas of my portfolio.

It's companies like these that form the main 'active-interest' section of my HYP, which allows me to largely ignore the bulk of the capital-base doing the steady work in the HYP background.

Having a HYP with a few companies like this in it, and keeping on the lookout for similar low-cap stories, definitely keeps me out of mischief regarding the largest part of my otherwise relatively boring income-portfolio.

Not for everyone, as you say, but certainly of interest to me when we can catch these sorts of growth stories at a relatively early stage. Totally agree that there will be some that don't work out, but the ones that do often make up for the failures quite considerably....

Cheers,

Itsallaguess

Walrus
Lemon Slice
Posts: 255
Joined: March 21st, 2018, 12:32 pm
Has thanked: 52 times
Been thanked: 93 times

Re: Microfocus an HYP share?

#198517

Postby Walrus » February 3rd, 2019, 9:25 am

Itsallaguess wrote:
OZYU wrote:
I hold both and topped up SMDS recently. My fishing in lower caps( 27% of that particular portfolio today) is the main reason my ISAhyp( note lower case, not uppercase) has performed so well since the rolling 12-months divi income, all reinvested since the beginning of PEPs, exceeded £75k at close on Friday for the first time.

I do not believe at all in safety in the elephants at portfolio level, for many of the so called stalwarts which I hold, as one does out of habit I suppose, I consider we would have been much richer if I had never heard of them( GSK being a prime example, there are a few others).


Absolutely Ozyu - as anyone with holdings in BATS or IMB will know well enough when they look at the five-year charts -

British American Tobacco - https://yhoo.it/2TxI7cE

Imperial Brands - https://yhoo.it/2UAK8or

There's absolutely no guaranteed safety in mega-caps, and I say that as an owner of both of the above shares, and there are other similar mega-cap stories, of course...


OZYU wrote:
There will be more occasional near total losses [with these types of lower-cap purchases], but nearly all my multi baggers/ exceptional xirr’s come from the lower orders in the cap range. You need to hold enough, not just the odd one, for the method to work imho.

It is NOT LTBH, you need to be prepared to change tack at certain times, and find key times to recycle surplus capital into divis


Definitely - and that's why I sold half of my holding nearly two years ago - I considered that the company had run it's fastest laps, and whilst it was still paying out a relatively good yield, I wanted to diversify-away some of the large capital growth, as well as some of the income, into other areas of my portfolio.

It's companies like these that form the main 'active-interest' section of my HYP, which allows me to largely ignore the bulk of the capital-base doing the steady work in the HYP background.

Having a HYP with a few companies like this in it, and keeping on the lookout for similar low-cap stories, definitely keeps me out of mischief regarding the largest part of my otherwise relatively boring income-portfolio.

Not for everyone, as you say, but certainly of interest to me when we can catch these sorts of growth stories at a relatively early stage. Totally agree that there will be some that don't work out, but the ones that do often make up for the failures quite considerably....

Cheers,

Itsallaguess


Next time you see one of these small cap multibaggers on the horizon please let us know ;)

I appreciate what you are saying though. Games Work to a lesser degree had a similar effect on my portfolio. Then I got lucky and sold out 50 percent at pretty much the top purely because it had got so large relative to everything else.

On the other hand I'm still waiting for Marstons to perform.....

Itsallaguess
Lemon Quarter
Posts: 3498
Joined: November 4th, 2016, 1:16 pm
Has thanked: 1135 times
Been thanked: 2138 times

Re: Microfocus an HYP share?

#198519

Postby Itsallaguess » February 3rd, 2019, 9:35 am

Walrus wrote:
Next time you see one of these small cap multibaggers on the horizon please let us know ;)


I'd suggest that the probability of failure would put most people who fish in the lower-cap waters off from recommending them here, and probably rightly so, but the main point of my input into this thread is to raise the point that if you don't even get your lower-cap rod out, then you're unlikely to catch any similar-looking fish....

In addition to that, HYP investors looking at the 2018 MCRO share-price fall and trying to maintain a cosy-outlook by 'staying in mega-caps' should not be able to ignore similar capital-erosion in some of those mega-cap 'stalwarts', as the phrase very often seems to be put in these parts.....

Cheers,

Itsallaguess

Walrus
Lemon Slice
Posts: 255
Joined: March 21st, 2018, 12:32 pm
Has thanked: 52 times
Been thanked: 93 times

Re: Microfocus an HYP share?

#198521

Postby Walrus » February 3rd, 2019, 9:39 am

Itsallaguess wrote:
Walrus wrote:
Next time you see one of these small cap multibaggers on the horizon please let us know ;)


I'd suggest that the probability of failure would put most people who fish in the lower-cap waters off from recommending them here, and probably rightly so, but the main point of my input into this thread is to raise the point that if you don't even get your lower-cap rod out, then you're unlikely to catch any similar-looking fish....

In addition to that, HYP investors looking at the 2018 MCRO share-price fall and trying to maintain a cosy-outlook by 'staying in mega-caps' should not be able to ignore similar capital-erosion in some of those mega-cap 'stalwarts', as the phrase very often seems to be put in these parts.....

Cheers,

Itsallaguess


I understand where you are coming from. Though if I was a Doris I'd be far happier investing in a small cap index ETF than trying to pick winners.

tjh290633
Lemon Quarter
Posts: 3295
Joined: November 4th, 2016, 11:20 am
Has thanked: 209 times
Been thanked: 1065 times

Re: Microfocus an HYP share?

#198525

Postby tjh290633 » February 3rd, 2019, 9:59 am

It is surprising how often last year's lemons become this year's peaches. That is why many of the unloved shares with higher than average yields become good choices for an HYP. Sometimes they become takeover targets, sometimes their fortunes change for the better, sometimes the market just got it wrong.

IMI and SMDS were both good choices for me. Both were in the right condition when I needed to replace a share. I have had occasion to trim both back on more than one occasion, 4 in the case of SMDS, 4 in the case of IMI, which includes selling nil-paid rights and share consolidation after a B-share issue.

Finding one can be a matter of luck or diligent study. A comment from others may sow the seed. You have to have the courage of your convictions.

TJH

andyalan10
Lemon Pip
Posts: 68
Joined: November 4th, 2016, 9:49 am
Has thanked: 15 times
Been thanked: 32 times

Re: Microfocus an HYP share?

#198536

Postby andyalan10 » February 3rd, 2019, 10:27 am

Itsallaguess wrote:
It's a niche-player in a specific market,

Itsallaguess


Hi

From the fact you are a long term holder I suspect you have a rather deeper knowledge of them than that phrase suggests, but for the benefit of others reading the thread I wanted to make the point that "The Group is the seventh largest software company in the world" and has annual revenues around $4bn. So hardly niche, and whilst you could say that selling to software to big business is a specific market it's not exactly a small one.

My broader point is that even for a semi-mechanical method like HYP we should be willing to do some research into any companies that come across the radar, especially those that operate in the B2B (business to business) space where we may be less familiar with them.

Andy

(currently holding, and would have been a lot better off not to have sold many years ago)

MDW1954
Lemon Slice
Posts: 702
Joined: November 4th, 2016, 8:46 pm
Has thanked: 120 times
Been thanked: 148 times

Re: Microfocus an HYP share?

#198548

Postby MDW1954 » February 3rd, 2019, 11:28 am

idpickering wrote:I agree with you TheMotorcycleBoy. For me my chosen shares are well known and hopefully reliable dividend paying shares. There is no need to buy relative unknowns just for the sake of diversification. But each to their own.

Ian.


Ian,

I first held Micro Focus in the mid-1980s. Sadly, I had to sell in the mid-1990s to fund a farmhouse renovation, and had looked for some time to make a re-purchase if the opportunity ever arose.

It duly arose last March, when the company found that its purchase of a large chunk of Hewlett-Packard had proved indigestible. Yes, this is a company with the scale to make acquisitions of that size. I made a modest purchase of shares at £10, and am up 47%. I hugely regret not buying more.

HYP is an income strategy, though.

You and others may find this chart instructive:

https://investors.microfocus.com/investors-media/shareholder-information/dividend-information/

MCRO may not be a share that receives a lot of attention on this board. But it meets the guidelines in every respect: it is a FTSE 100 share yielding 4.7%.

Adding a little more to that, its market capitalisation is about the same as Sainsbury, and larger than Morrison's, British Land, Severn Trent, Mark & Spencer and United Utilities.

This is not some unknown minnow, and you may like to acquaint yourself better with the business.

MDW1954

Itsallaguess
Lemon Quarter
Posts: 3498
Joined: November 4th, 2016, 1:16 pm
Has thanked: 1135 times
Been thanked: 2138 times

Re: Microfocus an HYP share?

#198550

Postby Itsallaguess » February 3rd, 2019, 11:45 am

andyalan10 wrote:
From the fact you are a long term holder I suspect you have a rather deeper knowledge of them than that phrase suggests, but for the benefit of others reading the thread I wanted to make the point that "The Group is the seventh largest software company in the world" and has annual revenues around $4bn. So hardly niche, and whilst you could say that selling to software to big business is a specific market it's not exactly a small one.


Well, of course I'd agree to some extent, but the 'niche player in a specific market' comment was really alluding to the software market that it's related to, but more importantly that it generally carries out highly important software-system tasks related to older, legacy systems, that other businesses need to maintain the operation of, but by doing so, these legacy systems also need to do continue to operated in an integrated way with other, more modern systems.

It doesn't just 'write software', and instead involves itself with fixing and maintaining other companies, allowing them to maintain their businesses with the often very old, legacy software systems that they need to maintain, expand, and integrate...Not an issue that's going to go away any time soon, I imagine....

For many years they've had a fantastic business model, and they've grown to not only be specialists in their fields, but also ones that are consistently trusted to carry out these complicated projects for often very high-profile global companies.

Everyone and their dog probably thinks they can fix a bit of code, but global players want to use companies such as MCRO that have proven track-records of success, and it was this, along with their very strong record of small-to-medium-scale acquisitions over many years that both attracted me to the company in the first place, and also allowed me to hold it for so many years as it simply kept on doing what it did - growing and growing in a busy area of the software market, whilst building a fantastic reputation as a solution-delivery company that simply kept on delivering...

The problem with the MCRO business model was that as it grew, it kept having to look up the market-base for larger and larger acquisitions. They clearly had a great record of integrating small-to-medium sized competitors, but when it started to flex it's muscles a little, with a larger and larger cash-pile (lots of which, it must be said, it continued to pay out as both dividends and regular specials...), it was clear that at some stage they were going to stumble a little...

The $8.8bn deal to bring HP Enterprise in, during 2017, looks to have been that stumble, and it was the difficulties reported with integrating that much larger business that led to the sharp share-price decline last year. I'm sure this is just a stumble, and that they'll get over the bump in time, but it's during this stage of that integration that I think it would be difficult to actually recommend them as a buy, but only because I have a natural tendency to be very defensive when talking up my own book, and it's something that I try to avoid if at all possible....

All I will say is that I'm sticking with my legacy holding, having sold half in March 2017 after a glorious run up over many years, and I'm sure it'll continue to throw off cash, and eventually turn the HPES acquisition into a great expansion, and as suggested earlier, there's always the chance of a bid from a larger player in this area of the market....

Cheers,

Itsallaguess

jackdaww
Lemon Quarter
Posts: 1033
Joined: November 4th, 2016, 11:53 am
Has thanked: 908 times
Been thanked: 154 times

Re: Microfocus an HYP share?

#198575

Postby jackdaww » February 3rd, 2019, 1:56 pm

i think this was a good software company .

but buying bits of HP , which itself made a dodgy acquisition in autonomy seems to me a bad idea.

many many years ago there were two small companies - microfocus and microsoft .

sadly i didnt buy either .

:(

Raptor
Lemon Quarter
Posts: 1656
Joined: November 4th, 2016, 1:39 pm
Has thanked: 148 times
Been thanked: 307 times

Re: Microfocus an HYP share?

#198576

Postby Raptor » February 3rd, 2019, 2:03 pm

They also acquired many of their competitors over the years. I worked for Serena as a world wide distributor manager. The "niche" we were all fighting for was the legacy systems and these were found in the larger companies, where we competed on change management, system support etc. I also worked closely with Compuware in my last years with IBM, selling the rights to them of cicspd a dump analysis tool. Micro focus has acquired these parts of Compuware along with Serena in 2016. This "niche" will be around for many years and will always be profitable. To show what I mean, I now work part time for Tescos and a lot of what I do is "green screen" based even if the front end is more this decade of PDAs, this is the same software I helped support 31 years ago in IBM.

Do not own them but have looked at them a number of times. I even went for an interview with them back in 1994, but did not get on with the manager who was interviewing. Was a waste of my time.

IMO they are definitely in HYP territory and would be a good selection for a HYP.

Raptor.

Spet0789
Lemon Slice
Posts: 823
Joined: June 21st, 2017, 12:02 am
Been thanked: 59 times

Re: Microfocus an HYP share?

#198577

Postby Spet0789 » February 3rd, 2019, 2:19 pm

Bought at 996p after the ludicrous overreaction to the revenue miss. Good stewards of investor capital and a niche business model of focussing on a mission-critical but non-core activity for many businesses. Plan to hold for good now.

kempiejon
Lemon Quarter
Posts: 1055
Joined: November 5th, 2016, 10:30 am
Has thanked: 5 times
Been thanked: 215 times

Re: Microfocus an HYP share?

#198581

Postby kempiejon » February 3rd, 2019, 2:44 pm

Microfocus MCRO,
FTSE100 yes, cap £6,100M
Forecast Yield = 5.7% (from webfg https://uk.webfg.com/equity/Micro_Focus ... onal-13372)
current yield = 4.11% (from dividenddata https://www.dividenddata.co.uk/dividend ... ?epic=MCRO)
Dividend increase history 13 years (divdata)
5 year dividend increase CAGR= 18% (dd)
Div Cover current 2.1 Forecast 1.9 (webfg)

I picked them about a year ago, turns out not excellent timing as the yield has improved a lot, I've added since and might again.

monabri
Lemon Quarter
Posts: 2638
Joined: January 7th, 2017, 9:56 am
Has thanked: 270 times
Been thanked: 647 times

Re: Microfocus an HYP share?

#198585

Postby monabri » February 3rd, 2019, 3:10 pm

I would suggest that Mr Murdoch, the newish CEO, will be focusing ( micro focusing :? ) on reducing debt ( sale of SUSE side of the business -see link). Thus I would suspect that the increases in dividends (CAGR 18% 5 yr, 21% 10 year) might soften. For a software company, the return on capital employed looks very low (4%). The EPS forecasts (negative) going forward over the next couple of years would also lead to a concern on dividends - I'm thus going to suggest a dividend " hold "( nibbling the divi cover). They have been buying their shares back....I'm not sure if they are taking a flyer buying back shares, increasing debt to do so on the assumption that they will get sheds of money from the Suse sale? ( see the last para of the link).

https://www.londonstockexchange.com/exc ... 70581.html


More buy backs
https://www.londonstockexchange.com/exc ... 55944.html

monabri
Lemon Quarter
Posts: 2638
Joined: January 7th, 2017, 9:56 am
Has thanked: 270 times
Been thanked: 647 times

Re: Microfocus an HYP share?

#198587

Postby monabri » February 3rd, 2019, 3:28 pm

Has the sale of the SUSE business been finalised ? If so, that would explain where they are getting the money from to buy back their shares. They said the sale would complete Q1 2019.

Arborbridge
Lemon Quarter
Posts: 2958
Joined: November 4th, 2016, 9:33 am
Has thanked: 550 times
Been thanked: 927 times

Re: Microfocus an HYP share?

#198600

Postby Arborbridge » February 3rd, 2019, 4:37 pm

kempiejon wrote:Microfocus MCRO,
FTSE100 yes, cap £6,100M
Forecast Yield = 5.7% (from webfg https://uk.webfg.com/equity/Micro_Focus ... onal-13372)
current yield = 4.11% (from dividenddata https://www.dividenddata.co.uk/dividend ... ?epic=MCRO)
Dividend increase history 13 years (divdata)
5 year dividend increase CAGR= 18% (dd)
Div Cover current 2.1 Forecast 1.9 (webfg)

I picked them about a year ago, turns out not excellent timing as the yield has improved a lot, I've added since and might again.


Does that chart of rising dividends look a bit too good to be true? 21.74% CAGR over 10 years?
A slightly odd thing, BTW, I first looked at the dividend figures on the HL site, and it gives growth of -2.25% for 2018. Not sure why that is.

And that share price chart looks rather, well, too volatile for sleepless nights. Do I need another share which can plunge like that overnight? Maybe MCRO isn't boring enough for a HYP, but then it would provide some nice diversity - and I could do with some more.

Arb.


Return to “High Yield Portfolios (HYP) - Practical”

Who is online

Users browsing this forum: No registered users and 8 guests