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