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Fund managers hit by Micro Focus shares crash

Legal & General and Rathbones fund managers hit as shares in software company lose more than half their value on profit warning.

Fund managers hit by Micro Focus shares crash
 

Shares in Micro Focus (MCRO) have crashed to the bottom of the FTSE 100, losing more than half their value as the software company lost its chief executive and cut its revenue outlook.

The shares tumbled 55.5% to 835p as the company warned annual revenue could fall as much as 9% due to integration problems following its $8.8 billion deal to ($6.3 billion) to buys software assets from Hewlett Packard Enterprise (HPE.N) last year.

Micro Focus blamed 'one-off transitional effects of the combination with HPE software' such as IT systems implementation, higher attrition of sales personnel and disruption of HPE global customer accounts.

Revenue for 2018 is now forecast to fall by between 6% and 9%, down from guidance of a 2% to 4% fall issued in January.

Micro Focus said chief executive Chris Hsu had resigned 'to spend more time with his family and pursue another opportunity'. He has stepped down immediately, with chief operating officer Stephen Murdoch promoted to take his position.

'The cracks in Micro Focus were clearly visible at its half-year results in January and today's warning confirms the problems have got worse,' said Russ Mould, investment director at AJ Bell.

'Large acquisitions are inherently risky as they come with integration challenges. Micro Focus appears to have underestimated these challenges and is now suffering.'

Numis analyst David Toms cut his rating to 'hold' from 'buy' on the news.

'Management characterises the issues as largely "transitional" from the HPE combination; whilst we concur with the logic, we note that guidance effectively calls the bottom in the current period and implies a good second-half recovery,' he said.

'As a result our new forecasts are set at the bottom of the guidance range.'

Fund managers hit by the Micro Focus slump include Rod Oscroft, who holds 5.6% of his £184.4 million Legal & General UK Alpha Trust in the company, amounting to his fourth largest holding.

Rathbones managers Alan Dobbie and Alexandra Jackson have also been hit. 

Dobbie holds 4.3% of his £75.7 million Rathbone Blue-Chip Income & Growth fund in the company, while Jackson has a 3.4% portfolio stake in Micro Focus, held in her £59.9 million Rathbone UK Opportunities fund.

Among the managers to have escaped today's plunge was Andrew Jackson, who sold the shares from his £391.4 million Miton UK Value Opportunities fund in January. 

'The shares, whilst not necessarily highly rated, were adjudged as likely to struggle under the uncertainties of the reporting of the recent merger,' he said in his latest update to investors.

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