Micro Focus Int

Today I closed the short position on Micro Focus Int for a small loss. The stock almost retreated to the 100EMA yesterday, and with a little  better money management I could have bagged a couple of points. 

Better to be flat than to be wrong.

Mico Focus International PLC - Going Short

Initially my interest in Micro Focus was as a long term buy, but today saw a huge bear candle form (see screen shot below). The 20 and the 50 EMA joined forces to create a real level of resistance, which the stock was unable to close above. I'm expecting a move down to retest the 100EMA.

I've placed a guaranteed stop at 302 (max risk approx 2%), but I'll know well before that if I'm in this trade in the wrong direction.Target left open for the time being.

Lets see what happens

Analysis of the Software Sector

As I posted a couple of days ago, I've now got details of the companies that comprise the Software Sector (as per IG Index). These companies are;

• Autonomy Corp
  
• Aveva Group
  
• Dimension Data
  
• Fidessa Group
  
• Invensys
  
• Logica
  
• Micro Focus Inte
  
• Misys
  
• Sage Group
  
• TeleCity
  

I was pleasantly surprised that there are that many to deal with. It'll make the analysis a lot easier!

I'm going to start the analysis by simply looking at the technicals of each of the companies. A small scan will reveal whether the company is a leader or a laggard - by that I mean is the companies performance in line with the index or is the company performing badly compared to the index. I'm only interested in leaders

Autonomy Corp - LEADER
Aveva Group - LAGGARD
Dimension Data - LAGGARD
Fidessa Group - LAGGARD
Invensys - LAGGARD
Logica - LAGGARD
Micro Focus Int - LEADER
Misys - LAGGARD
Sage Group - LAGGARD
TeleCity - LEADER

Now, lets delve a little deeper into these companies.

Autonomy Software - Key points

• "A leader in intelligent search" (sounds interesting, this is a company that are working in just the right sort of area to benefit from Web 2.0)
  
• They are trading at or near 2 year highs. (Perfect, although there may be resistance as they try to break through these highs)
  
• Grown from T/O of $65m in 2004 to $503m in 2008. (Very impressive growth)
• Recently introduced a new search product (innovation and R&D spend is the sign of a good company)
• They have cash on the Balance Sheet (can finance 'stuff' without need to borrow)
• Debt/Equity Ratio is comparatively low at 2.37 (less exposure to credit crunch)

I like what I read about Autonomy. Definitely on the watch list.

Micro Focus Int - Key points

• "Provider of enterprise application management solutions" (mmm, not actually sure I know what that means!)
• Look to have expanded through acquisition (can be a risky strategy due to integration challenges)
• Purchased a company on 4th Jan 2009. (In the current market condition, this is an impressive bit of business - I wonder how they funded it?)
• They are trading at or near 2 year highs (Shows they are performing irrespective of the current crisis.
• They have grown steadily since 2004 (Solid growth as opposed to explosive)
• NO DEBT! (this makes them bloody attractive!)

I also like this company. It's on the watch list

TeleCity - Key points

• Pan European provider of independent data centers (yawn - this is not exciting!!)
• Recently announced an Amsterdam data centre (oookay, my tits are now really sagging. Not an interesting business, but, yawn, I'll keep looking)
• Doubled in size since 2006 (ok, thats quite cool)
• They are recovering from hitting a low in Nov 2008.
• Debt/Equity a massive 47.88 (This is a worry)

Telecity have been relegated to TheAtticMans sub bench. I'll keep an eye out, but they are certainly less investable than Autonomy and Micro Focus

I'll take a real quick look at the LAGGARDS to make sure I've not missed anything.....I've had a look and nothing jumps out as exciting.

Next steps. Some more detailed research into the companies and some consideration on logical entry points.

Autonomy - daily chart

Micro Focus - daily chart