Micro Focus International reports 290% Net Income growth in 2018 while 11.4 pp EBITDA Margin decline from 38.9% to 27.5%
14 Feb 2019 • About Micro Focus International (
$MCRO) • By InTwits
Micro Focus International reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Micro Focus International is a fast growth stock: FY2018 revenue growth was 129%, 5 year revenue CAGR was 55.0% at FY2018 ROIC 1.3%
- Micro Focus International has low CAPEX intensity: 5 year average CAPEX/Revenue was 0.8%.
- The company has potentially unprofitable business model: ROIC is 1.3%
- It operates with high leverage: Net Debt/EBITDA is 4.2x while industry average is -1.8x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Micro Focus International's Revenue surged on 129%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 2.9 pp from 29.9% to 32.8% in 2018.
Gross Margin decreased on 4.2 pp from 77.2% to 73.0% in FY2018. Gross Margin stuck to a declining trend at -5.2 pp per annum in FY2014-FY2018. SG&A as a % of Revenue increased on 6.2 pp from 47.3% to 53.5% in FY2018.
Net Income margin increased on 7.6 pp from 10.8% to 18.4% in FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 Micro Focus International had CAPEX/Revenue of 0.82%. The company's CAPEX/Revenue showed almost no change from FY2015 to FY2018. Average CAPEX/Revenue for the last three years was 0.86%.
Return on investment
The company operates at low ROIC (1.3%) and ROE (8.8%). ROIC decreased slightly on 1.9 pp from 3.2% to 1.3% in FY2018. ROE increased on 5.0 pp from 3.8% to 8.8% in FY2018.
Leverage (Debt)
Debt level is 4.2x Net Debt / EBITDA and 4.8x Debt / EBITDA. Net Debt / EBITDA dropped on 2.4x from 6.6x to 4.2x in FY2018. Debt showed almost no change in FY2018 while cash dropped on 15.0%.
Micro Focus International has no short term refinancing risk: cash is higher than short term debt (3,596.9%).
Valuation and dividends
Micro Focus International's trades at EV/EBITDA 10.4x and P/E 9.3x.
Management team
Micro Focus International's CEO Stephen Murdoch is a founder and has spent 1 year with the company.
Financial and operational results
FY ended 31 Oct 2018
Micro Focus International ($MCRO) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 433 | 835 | 1,245 | 1,610 | 3,684 | 128.8% |
| Gross Profit | 403 | 743 | 1,110 | 1,243 | 2,689 | 116.4% |
| SG&A | 190 | 433 | 555 | 761 | 1,971 | 159.0% |
| EBITDA | 198 | 264 | 510 | 626 | 1,014 | 61.9% |
| Net Income | 122 | 101 | 163 | 174 | 678 | 289.9% |
Balance Sheet
|
|---|
| Cash | 33 | 241 | 667 | 730 | 621 | -15.0% |
| Short Term Debt | 294 | 126 | 275 | 32 | 17 | -46.4% |
| Long Term Debt | 0 | 1,519 | 1,470 | 4,850 | 4,857 | 0.1% |
Cash flow
|
|---|
| Capex | 3 | 5 | 10 | 15 | 30 | 100.1% |
Ratios
|
|---|
| Revenue growth | 5.1% | 92.7% | 49.2% | 29.3% | 128.8% | |
| EBITDA growth | -0.2% | 33.6% | 93.1% | 22.8% | 61.9% | |
|
|---|
| Gross Margin | 93.1% | 89.0% | 89.1% | 77.2% | 73.0% | -4.2% |
| EBITDA Margin | 45.6% | 31.6% | 40.9% | 38.9% | 27.5% | -11.4% |
| SG&A, % of revenue | 43.8% | 51.9% | 44.6% | 47.3% | 53.5% | 6.2% |
| Net Income Margin | 28.2% | 12.2% | 13.1% | 10.8% | 18.4% | 7.6% |
| CAPEX, % of revenue | 0.7% | 0.6% | 0.8% | 0.9% | 0.8% | -0.1% |
|
|---|
| ROIC | 57.2% | 9.1% | 9.2% | 3.2% | 1.3% | -1.9% |
| ROE | | | 11.4% | 3.8% | 8.8% | 5.0% |
| Net Debt/EBITDA | 1.3x | 5.3x | 2.1x | 6.6x | 4.2x | -2.4x |
Peers in Software & Computer Services
Below you can find Micro Focus International benchmarking vs. other companies in Software & Computer Services industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Pinnacle Technology Group ($PINN) | -17.1% | | | 108.6% | |
| Wandisco ($WAND) | 40.0% | -2.0% | 3.5% | 72.6% | |
| Microgen ($MCGN) | -0.0% | 7.2% | 34.5% | 45.7% | |
| Lombard Risk Management ($LRM) | 21.6% | 5.4% | 10.3% | 44.8% | |
| Zoo Digital Group ($ZOO) | | 19.9% | 1.5% | 41.7% | 73.2% |
| |
|---|
| Median (40 companies) | 0.8% | 5.4% | 11.1% | 11.6% | 18.9% |
|---|
| Micro Focus International ($MCRO) | | 92.7% | 49.2% | 29.3% | 128.8% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Lombard Risk Management ($LRM) | 99.2% | 98.6% | 99.3% | 99.6% | |
| Netcall ($NET) | 91.0% | 90.9% | 91.2% | 91.7% | 90.2% |
| Wandisco ($WAND) | 80.7% | 93.2% | 88.1% | 90.0% | |
| Eleco ($ELCO) | 87.8% | 88.9% | 86.7% | 87.9% | |
| Dotdigital Group ($DOTD) | 90.5% | 89.3% | 87.4% | 86.1% | 78.9% |
| |
|---|
| Median (34 companies) | 57.6% | 57.4% | 59.3% | 56.1% | 41.3% |
|---|
| Micro Focus International ($MCRO) | 93.1% | 89.0% | 89.1% | 77.2% | 73.0% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Rightster Group ($RSTR) | -146.3% | -64.1% | -19.9% | 114.2% | |
| Dotdigital Group ($DOTD) | 29.2% | 32.0% | 30.4% | 31.7% | 26.9% |
| Sopheon ($SPE) | 6.8% | 19.8% | 22.6% | 27.9% | |
| Mail.Ru Group Ltd ($61HE) | 50.5% | 34.6% | 35.2% | 25.1% | |
| Gresham Computing ($GHT) | 8.8% | 18.1% | 20.6% | 22.6% | |
| |
|---|
| Median (40 companies) | 10.7% | 12.3% | 10.3% | 10.9% | 12.1% |
|---|
| Micro Focus International ($MCRO) | 45.6% | 31.6% | 40.9% | 38.9% | 27.5% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Actual Experience ($ACT) | 2.6% | 6.0% | 39.9% | 48.7% | 3.6% |
| Csf Group ($CSFG) | 2.4% | 7.1% | 4.9% | 8.5% | 16.5% |
| Pennant International Group ($PEN) | 1.4% | 0.2% | 6.3% | 7.1% | |
| Nasstar ($NASA) | 2.1% | 5.2% | 8.9% | 6.5% | |
| Oxford Metrics ($OMG) | 2.8% | 2.4% | 1.8% | 5.8% | 3.9% |
| |
|---|
| Median (40 companies) | 1.8% | 1.3% | 1.2% | 1.3% | 1.0% |
|---|
| Micro Focus International ($MCRO) | 0.7% | 0.6% | 0.8% | 0.9% | 0.8% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Rm ($RM.) | 130.8% | 289.2% | 254.7% | 73.8% | 39.0% |
| Triad Group ($TRD) | 24.5% | 61.5% | 74.4% | 61.1% | 41.0% |
| Sopheon ($SPE) | -10.5% | 14.7% | 22.7% | 32.3% | |
| Dotdigital Group ($DOTD) | 28.5% | 31.4% | 28.9% | 29.3% | 26.6% |
| International Bus Mach Corp ($IBM) | 31.6% | 29.7% | 21.5% | 19.5% | 19.8% |
| |
|---|
| Median (42 companies) | 9.4% | 4.3% | 7.1% | 6.4% | 7.5% |
|---|
| Micro Focus International ($MCRO) | 57.2% | 9.1% | 9.2% | 3.2% | 1.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Datatec ($DTC) | 0.3x | 0.4x | 1.1x | 10.2x | |
| Progility ($PGY) | 1.8x | 12.8x | 6.8x | 3.9x | |
| Zoo Digital Group ($ZOO) | | | 38.3x | 3.2x | 0.9x |
| Statpro Group ($SOG) | -0.3x | -0.2x | | 3.0x | |
| Idox ($IDOX) | 1.0x | 1.3x | 1.2x | 2.2x | |
| |
|---|
| Median (32 companies) | -0.3x | -0.5x | -0.9x | -0.5x | -0.4x |
|---|
| Micro Focus International ($MCRO) | 1.3x | 5.3x | 2.1x | 6.6x | 4.2x |
