Micro Focus H1 preview: Where next for the Micro Focus share price?

When will Micro Focus release interim results?

Micro Focus is scheduled to publish interim results covering the six months to the end of April on Wednesday June 22.

Micro Focus H1 earnings consensus

Analysts believe Micro Focus saw revenue decline 7.7% in the first half to $1.32 billion and adjusted Ebitda is expected to fall over 13% to $450.5 million. Adjusted EPS is forecast to drop 22% to $0.52.

Micro Focus H1 earnings preview

The top priority for Micro Focus, which delivers mission-critical enterprise software, is to improve its revenue trajectory after seeing its topline slide for three consecutive years, which has had a knock-on effect on both earnings and cashflow. The ultimate aim is for revenue to come in flat or at an better trajectory in the 2023 financial year. This, combined with $400 million to $500 million in annual cost-savings, is designed to help improve adjusted free cashflow to $500 million, having plunged to just $292.4 million in the last financial year after being impacted by increased investment and one-off tax payments.

Annual declines in revenue have improved over the last three years. Micro Focus has said its customer-centric investments, spanning from the consolidation to just one platform across the group and a shake-up to its product portfolio to focus on the most promising growth opportunities, are starting to pay off. It said in February that it was moving onto the next stage of its turnaround plan and that it was now in a position to ‘focus the energy of the entire organisation externally onto customers and capturing significant opportunities for value creation’.

However, markets remain unconvinced and believe the company will see revenue decline 7.9% this year, which would mark a huge setback considering the figure was down just 3.4% last year. In fact, markets have doubts that Micro Focus can achieve its revenue goal in the 2023 financial year, with consensus numbers from Bloomberg suggesting they believe revenue will still be falling – although it does suggest earnings will return to growth as its cost-cutting efforts pay off. With this in mind, Micro Focus still has a job to do in convincing markets that it remains on track and can return to growth over the coming years.

Where next for the Micro Focus share price?

Micro Focus shares have remained highly volatile over the past 18 months, but the range in which it has traded has been narrowing over the past three months. Traders will be eagerly looking for the stock to breakout of this range. Shares are testing the bottom-end of the narrowing range today.

A breakout below will open the door to the 336p and then the 18-month low of 319.8p hit in early March. The 18-month low is a significant floor for the stock that must hold to avoid a more severe fall to below 280p.

Trading volumes have been steadily rising over the past 100 days, but there has been a notable acceleration recently considering the 5-day average volume at time, during which it has fallen lower, sits almost two-thirds above the 100-day average to suggest the current downward pressure could continue. The RSI remains in neutral territory.

On the upside, the stock will need to recapture all three moving averages and push above 393p to breakout higher. From there, 422p comes back onto the radar before it can try to overcome the 2022 closing-high of 466p.

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