Micro Focus, Misys robust in tough IT market

LONDON (Reuters) - IT firm Misys (MSY.L) gave a trading update showing a boost from acquisition synergies on Thursday and Micro Focus (MCRO.L) said its results benefited from cost-conscious customers upgrading rather than buying new.

Micro Focus, which updates mainframe legacy software for companies such as Tesco and Boeing, reported a 31 percent rise in adjusted pretax profit to $116 million (71.3 million pounds) for the year to end-April, on revenue of $275 million, up 20.4 percent.

Analysts had expected the group to post adjusted pretax profit of $114 million on sales of $276 million, according to a company-supplied consensus of 15 forecasts.

"Conditions out there are tough, but we have a genuine good proposition that reduces costs, reduces risk and improves productivity," Micro Focus CFO Nick Bray said in an interview.

Micro Focus's low-cost upgrades for old mainframe programs, such as those that manage payroll or stock levels, have been popular with companies looking to control IT costs in the economic downturn.

Misys, which serves the healthcare and financial sectors, says sales for the year to end-May rose about 40 percent to 695 million pounds ($1.15 billion), boosted by the creation of its Allscripts-Misys (MDRX.O) healthcare business, and just below a consensus compiled by Reuters.

Synergies from the deal were better than expected, the company said in a trading update, and would help adjusted operating profit rise 40 percent, ahead of consensus forecasts.

Excluding the Allscripts deal and currency movements, revenue was up by about 3 percent, while adjusted operating profit was up about 15 percent, the company said ahead of its full-year results in late July.

Misys said revenue growth across financial services was partially offset by a decline in treasury and capital markets.

Shares in both companies have performed better than their peers over the last 12 months, with Micro Focus outperforming the FTSE 350 software and computer service index by 51 percent and Misys by 10 percent.

Micro Focus was up 0.7 percent at 377.5 pence at 1032 GMT, while Misys slipped 1.2 percent to 169.75 pence, against a flat index of mid-sized UK companies .FTMC.

TESTING TIMES

Numis analysts said Misys had delivered strong results, particularly on margins.

"The big question for us is whether FY09's outperformance is 'pull forward' from future years, or represents an acceleration in the margin potential," they said in a note.

Piper Jaffray analyst Rajeev Bahl said he expected the outlook to remain robust for Micro Focus as it prepares to acquire Borland.

Micro Focus entered the application-testing market in May through the acquisition of Compuware, and on June 18 trumped a rival bidder with an $88 million offer for Borland Software BORL.O.

Together the deals would give Micro Focus a 13-14 percent share of the software testing, a market worth about $2 billion a year, Bray said.

The Compuware deal would impact margins in the short term, which Bray said would be restored in a "sensible time horizon."

"We are seeing some good early signs only three weeks into (the Compuware acquisition)," Chief Executive Stephen Kelly said. "The machine is purring already."

Kelly said the group would continue growing organically when the economy recovered.

"We play very strongly to the growth agenda, as we've seen through Tesco's expansion overseas," he said. "Where companies want to drive innovation and growth, we are very relevant in that environment."

(Reporting by Paul Sandle; editing by Elaine Hardcastle)