Micro Focus, a member of the FTSE 250, provides innovative software that allows companies to dramatically improve the business value of their enterprise applications. Micro Focus Enterprise Application Modernization, Management and Testing software enables customers' business applications to respond rapidly to market changes and embrace modern architectures with reduced cost and risk. For additional information see www.microfocus.com, or their Investor Relations.

They have announced their final results today which they had already confirmed would be in line with expectations. The highlights were revenue growth at 6.4% in constant currencies was just above the top end of their 4 to 6% guidance and this included a return to organic growth of 2.2% in the second half. They claim to have met or exceeded expectations in the last 13 quarters, but since they probably set expectations it probably just means they are good at managing these. 

Adjusted diluted earnings were up by 14.9%, slightly ahead of forecasts. They also increased the full year dividend by 10% to 44 cents. Net debt increased slightly to 1.3x EBITDA (in the top credit rating range - see check list page) as they paid for acquisitions, dividends and a return of value via 60 pence returned to shareholders in November 2013. This will bring the cash returns to shareholders since March 2011 to £449.0m representing 71% of the market capitalization at that date.

The board believes that the Company has demonstrated its ability to support a modest level of gearing and is now increasing the target net debt to RCF EBITDA multiple to 2.5 times. This will be achieved through planned returns of value and/or acquisitions should they be more value enhancing. However, in the absence of a significant acquisition, share buy-back opportunity or unforeseen circumstances and subject to shareholder approval the Company intends to make a further Return of Value to shareholders in November 2014. So a fairly mature software business which seems to be well run and is being managed to produce cash returns if no reinvestment or enhancing acquisitions are available. They seem to be running it like a Venture Capitalist, but for the benefit of shareholders, by extracting cash and gradually building up the debt, although of course that will need watching as it builds up. Their debt target above will for example take their credit rating down a notch, but I guess they would argue it as being more "efficient". 

It appears reasonable value on around 13 to 14x with a yield of just over 3% plus the prospect of a further capital return to come so it seems OK, if a little dull, as part of a broadly diversified income portfolio. Mr. Market seems to like it this morning as he has marked them up by 4% or so. To finish up I'll leave it to Kevin Loosemore, Executive Chairman of Micro Focus International plc who said:

 "We believe that by continuing to execute our business strategy and financial model Micro Focus is positioned to continue to provide shareholders with returns in the coming years.

Our core objective is to deliver consistent shareholder returns of 15% to 20% over the long-term

The underlying premise behind Micro Focus' business strategy is that the Company should consistently and over the long-term deliver shareholder returns of at least between 15% and 20% per annum.  To deliver this objective the Company has adopted an operational and financial strategy underpinned by consistent and effective management and reward systems.  This strategy is capable of execution over the long-term and also of significant scaling should appropriate opportunities arise.

The Company was listed on the London Stock Exchange on 12 May 2005 at a price of 130 pence and in the year ended 30 April 2006 reported diluted EPS of 8.17 cents and declared total dividends for the year of 6 cents.    In the year ended 30 April 2014 diluted EPS is 82.35 cents and proposed full year dividend is 40.0 cents representing a compound annual growth rate of 33.5% and 28.3% respectively. 

Full year dividends on our shares have totalled 107.58 pence and since January 2012 we have made three Returns of Value totalling 155 pence per share.  On 30 April 2014 our share price had increased to 775 pence.  A shareholder who invested at the time of IPO and had reinvested the Returns of Value would have grown their investment by 579.9% which is a compound annual return of 23.8%.

On 28 March 2011, on the back of two profit warnings and poor performance in the year ended 30 April 2011, the Company announced a share buy-back programme.  The closing share price on 25 March 2011, the day before the announcement, was 308.6 pence and the dividends received since IPO at that time were 43.56 pence.  The annual rate of return for the shareholder from IPO to 25 March 2011 was 18.5% per annum.   The Company's market capitalization on that date was £635.0m and by 30 April 2014 this had increased to £1,081.4m.  The Company made cash returns to shareholders during this period of £424.3m, consisting of share buy-backs £65.0m, ordinary dividends of £103.6m and Returns of Value of £255.7m.  These cash returns represent 66.8% of the market capitalization of the Company on 25 March 2011 and the annual compound return for shareholders from that date to 30 April 2014 is 38.1% per annum."

Emis is a healthcare software supplier that I have written on a few times, firstly in depth when I introduced it in March 2014 and then again after their full year results shortly thereafter and then briefly when they had a contract update. In an otherwise slow news day today they have announced that over the past month the Group has been awarded preferred bidder status for a further three NHS Trust clinical system contracts in the Child, Community & Mental Health (CCMH) market. 

In addition to this they said they are having an Analyst and investor Teach in, which as is normally the case with these things they say will not include any new financial information. However they say it will cover the Group's integrated healthcare product and service offerings and will include product demonstrations. Apparently copies of the presentation materials will be made available after the event on their website, so that might be worth checking out if you want to gain a better understanding of their products and services.

The shares were around 600 pence when I first wrote about them and since then they have outperformed the market, being up by around 20% to 720 pence this morning against the FTSE 350 which is up by around 4% and the FTSE All Aim index which is down 7% or so since then. The share price is therefore not looking so sick now and this leaves them on just over 17x earnings with a well covered (2.3x) 2.5% yield for this year, if they deliver the forecast 10% or so dividend growth. This seems quite likely as the earnings are forecast to be up by around 19% and the earnings revision trend has been positive recently and may be helped further by today's announcement. While it is now more expensive than when I bought it and a bit overbought in the short term, given the share price rise. I am inclined to run with it as it hasn't hit my 2 and 20 sell trigger yet as it obviously remains a good quality business which seems to be delivering quite well with the latest contract wins. See the links above if you want more information about it and to do your own research.

..with a sick looking share price.

This is an AIM listed stock with a market capitalization of £375 million which describes itself as the UK’s leading supplier of healthcare software to GP's and a major software supplier to high street pharmacies. I think this is interesting because GP's are getting bigger budgets and a greater role in healthcare provision and the government is also trying to make greater use of patient data to improve health outcomes and efficiency in the NHS, although I see there have been some delays to the roll out of this on privacy concerns. 

Their business provides a range of services across healthcare. This is broken down as follows:
Healthcare Record Systems
EMIS Web allows primary, secondary and community healthcare practitioners to view and contribute to a patient’s cradle-to-grave electronic healthcare record. This can improve patient care and increases efficiency. As at 30 June 2013 they had a UK GP market share of 52.4%. 
Pharmacy
RX Systems is a major supplier of software to pharmacists with a UK market share at 30 June 2013 of 34.9%. Their ProScript software is the most widely used community pharmacy dispensary management system in the UK, efficiently managing the dispensary process, labelling and endorsing patient records, ordering and stock control. 
Hardware
Egton specialises in the supply of ICT infrastructure, application software and value added services to healthcare and other public and private sector organisations.
Data Sharing
Healthcare Gateway facilitates the sharing of patient data via the medical interoperability gateway (MIG). EMIS IQ meets the demand for high quality clinical and management information to support the national General Practice Extraction Service (GPES).
Patient Services
Patient.co.uk is the leading independent health information and healthcare transactional site. It helps patients play a key part in their own care with an information library, health apps, on line and mobile services such as GP appointment booking and repeat prescription ordering.

Brief Highlights from Last years full year figures are:
Turnover £86.3 million with £69.4 million or 80.4% recurring and an operating profit of £22.8 million for an operating margin of 26.4%. They reported earnings of 30.76 pence and a dividend of 14.2 pence. They also did a couple of acquisitions last year (2013) spending £57.5 million and moved into a net debt position of £13.5 million at the year end having had net cash of £7.7 million at the end of 2012. These acquisitions were funded by a placing at 615 pence which raised £27 million and a new £32 million debt facility.

This year they are expected to report around 35 pence and a 16 pence dividend which is then forecast to rise to 39.7 pence and 17.6 pence which at the current price close to 600 pence leaves it on around a market rating of 15x with a 3% yield for the year to December 2014 growing at around mid teens rate. So it is certainly not cheap, but I think it looks quite good quality given that it supplies the healthcare industry, has high market shares and a high degree of recurring revenue. This is demonstrated by the return on capital employed (ROCE) of 31.3% and the operating margin of 26.4%. On Stockopedia it get a  98 on quality (100 is best). For an AIM stock it has quite good institutional backing with  Standard Life owning 9.4%, Schroders - 5.63%, Liontrust and Investec  around 5% each. In fact major shareholders make up around 69% of the shares so they are probably quite tightly held, although the share price momentum has been surprisingly poor.

Conclusion:
The reason for suggesting you check up on it now is that they have final results next week on 20th March, which could remind the market of its existence and maybe act as a catalyst to help turn around the depressed share price. Given the share price trend it will be interesting to see how the results are received and what they have to say about the outlook as they sounded pretty positive in the year end trading update in back in January when they said:

 "Trading for the year was in line with the Board's expectations with continued organic growth in revenues and profits together with positive contributions from the two acquisitions completed during the second half of the year.  The Group has continued to gain market share in each division during the period." They also mentioned progress being made with the renewal of the English GP Systems of Choice (GPSoC) Framework which is due to be concluded by 31 March 2014. This seems to be a contract that is up for grabs that EMIS is on the short list for, so I guess this could either be a positive or a negative depending on the outcome.

On this basis I have taken a small position as I like the quality and the value is OK, if not outstanding. Probably not one to rush out and buy but certainly worth watching I think, although I could be wrong.