Micro Focus loses City’s confidence on doubts over Hewlett Packard acquisition

Publicly listed UK technology giants are hard to come by, so today’s falls in Micro Focus will have done little to draw investors to the sector.

For many years chip designer ARM Holdings was the stock market’s tech darling, but a big gap was left after its sale to the Japanese.

The gap was filled by turnaround specialist Micro Focus but today broker Investec decided to stick the boot in.

Last September Micro Focus raised eyebrows in the City when it bought Hewlett Packard Enterprise’s software business for a whopping £6.9 billion.

HP’s software business was best known for its grim tangle with Autonomy — which it bought for $11 billion (£7.8 billion) in 2011 in an effort to transform HP into a software leader.

Nevertheless Micro Focus had its loyal backers and had built up goodwill in the Square Mile by updating out-of-fashion IT systems used in retailers and banks. But for Investec the HP deal is a step too far and analysts cut it to Sell from Hold, sending the firm’s shares down 30p at 2149p. Julian Yates, at Investec, said: “We were fans of Micro Focus, but went to Hold on the HPE deal. The scale of the integration, lack of evidence that the underlying Micro Focus had stabilised and HPE’s vast and largely undifferentiated software stack diluting Micro Focus differentiation concerned us.”

Recent results which showed HP operations growth at the bottom end of expectations also spooked Yates. He added: “Recent results underwhelmed and our concerns have escalated rather than abated.’

Overall the FTSE 100 was up 2.65 points at 7590.63, providing some respite for investors after yet more tech-inspired losses in the US.

Outside the top flight, fashion retailer Asos dropped 74p at 7330p after a broker downgrade from HSBC.

This was despite it being picked out as one of a few retailers that could compete with Amazon’s new Wardrobe service, which allows customers to try on items before buying them and is expected to be introduced in the UK at some point this year.

Asos introduced its “Try Before You Buy” service before Christmas and so far it has had minimal impact on return rates.

But it wasn’t enough for HSBC and shares fell 60p at 7344p.

On the second tier, Dairy Crest rose after the Cathedral City-maker said total revenue for the April to December period was well ahead of last year. Shares rose 21p at 581p despite a warning milk and cream price rises were hitting margins.

Small-cap listed Satellite Solutions was making gains after the provider of super-fast broadband, said it expected to post a “material increase” in earnings this year.

For the financial year just ended, revenue doubled to £44 million from £22 million the year before. Shares were up 0.2p at 8.7p.