Micro Focus International plc (MCFUY) shares surged to the top of London's FTSE 100 Wednesday on the back of third quarter results of Hewlett Packard Enterprise's (HPE) - Get Report software group, which is purchased earlier this week.
Micro Focus shares were up 7.82% in the first hour of trading, changing hands at 2,377 pence.
Micro Focus struck an $8.8 billion reverse takeover of HPE's software arm in September 2016 and formally closed the deal earlier this month. The merger with HPE makes Micro Focus the seventh largest pure-play software company. Wednesday's surge was the biggest rise in shares since the deal was announced on Sept. 7, 2016. Shares were boosted by encouraging news from HPE's software unit.
After the bell Tuesday in New York, HPE reported third quarter revenue for its software unit was down 3% year-on-year, to $718 million, or down 2% when adjusted for divestitures and currency. The fall however was better than the 9% recorded in the second quarter.
Licence revenue for the three months ending July 31 was up 2%, or 5% when adjusted for divestitures and currency, compared with the same time period last year. Software-as-a-service was up 7% on the prior year period.
Third quarter professional services revenue declined 23% on the prior year period and support was down 2% on the prior year period.
HPE Software saw an improvement in operating margin to 24.9%, compared with 17.8% in the same quarter last year, driven by a reduction in operating expenditure and a lower Professional Services mix.
It now expected that the revenue for HPE Software business for the 12 months to Oct. 31, 2017 will be in the range of $2.89 billion and $2.96 billion. The reduction in expectations is is driven by the active reduction of less profitable professional services in sub-scale service lines and geographies together with lower licence revenue offset by increasing SaaS revenue and support revenue being broadly flat. Only two months of this period will be included in the results for Micro Focus for the six months ending Oct. 31, 2017.
HPE reported July quarter (fiscal third quarter) revenue of $8.21 billion and adjusted EPS of $0.30. Excluding revenue from the software unit, revenue totaled $7.5 billion, roughly in-line with consensus analyst estimates and up 6% excluding forex and divestitures. EPS, lifted by a 5% drop in adjusted operating expenses to $2.02 billion and $625 million in stock buybacks, beat a $0.26 consensus.
HPE shares surged in after-hours trading, gaining 4.99% after the earnings were released. HPE shares closed at $14.04 on Tuesday, losing 1.89%.
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