Micro Focus Declines After Reducing Full-Year Revenue Forecast on Orders

Micro Focus International Plc, the U.K. business software maker whose clients include Tesco Plc, dropped the most in more than four years in London trading after reducing its full-year sales forecast.

Micro Focus fell as much as 28 percent, the most since February 2006. First-quarter underlying revenue was “flat,” missing management forecasts, the Newbury, England-based company said in a Regulatory News service statement today. The company predicted “low single digit like-for-like revenue growth in the 2011 financial year instead of mid single digit growth,” it said in the statement.

The software maker, which appointed Nigel Clifford as chief executive officer in May, said a number of “significant transactions” were delayed beyond the period, while there was “continued weakness” in higher-volume, low-value deals.

“The company could not explain why there has been a deal slippage in the first quarter, and this does not match up with their performance in the fourth,” said Alexandra Jarvis, analyst at KBC Peel Hunt, in a phone interview. “There is a potential for further revenue decline because there is a decreasing ability for margins to compensate in the next few quarters,” said Jarvis, who downgraded her recommendation to “hold” from “buy” on the stock.

Micro Focus shares declined as much as 117 pence to 302 pence and traded at 302.2 pence as of 9:51 a.m. The stock has dropped 34 percent this year, giving the company a market value of 621 million pounds ($980 million).

Earnings Guidance

Total revenue grew 40 percent in the first quarter compared with the same period a year earlier. Full-year guidance for earnings before interest, taxes, depreciation and amortization is unchanged, Micro Focus said in the statement.

The guidance on Ebitda “now looks a little exposed to us, we are reducing our forecasts,” analysts David Toms and Will Wallis at Numis Securities wrote in note. “We expect this update to disappoint the market and coupled with management departures over the past 12 months, investor confidence is likely to be impacted.”

The search for a chief financial officer has “produced good candidates and discussions continue,” said Micro Focus. Nick Bray left the company in June, following the appointment of Clifford as CEO.

To contact the reporter on this story: Sakshi Sharma in London at ssharma121@bloomberg.net

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