For investors who are focused on value, Brexit has thrown up opportunities to invest at cheap prices in several industries because they are thought more likely to be affected by leaving the EU. Then there are other companies in the FTSE 350 with cheap share prices whose struggles are more of their own making.
Spending big
Technology company Micro Focus International (LSE: MCRO) fits into the latter category. It made a potentially transformational acquisition back in 2017 for the software division of Hewlett Packard. The trouble is that the group is still trying to integrate the business it spent £7bn getting.
Micro Focus says it spent £110m in the six months to the end of April on merging HP’s operations into its own. It is the difficulties with integrating the HP division that has seen the share price dive by 50% in just the last six months.
The upside of this big share price drop for those looking for value is that the shares now trade on a price-to-earnings ratio of under nine and the yield has rocketed up to over 12%. If earnings can be picked up then the dividend could be sustained, but at this elevated level, there is danger of a cut in the future if trading doesn’t improve.
As a result of the problem, CEO Chris Hsu quit in 2018, but still there has been no improvement. Furthermore, the group continues to acquire other businesses, so there’s clearly some risks in investing. But if the business can conduct a turnaround, now could be a good time to invest with the shares so cheap and the yield so high.
A rocky patch
Chemicals group Synthomer (LSE: SYNT) is another large company feeling some pain at the moment, which is depressing the share price. Wider economic issues seem to be the main cause as rival Croda International has also seen its share price fall.
Shareholders might also be concerned by the company making an acquisition just at a time when it has issued a profit warning because of a challenging market backdrop for the chemicals industry.
Alongside its most recent results, Synthomer warned that if current market conditions continue in the fourth quarter, the board expects underlying profit before tax for FY 2019 to be approximately 10% below 2018.
Part of the problem for Synthomer must be the reliance on Europe for the group’s products. Although management might not have made a mistake as big as that of Micro Focus International, some of the pain shareholders are feeling must reflect their decisions.
With the share price down 15% so far – and having fallen most recently on the gloomy outlook – the shares trade on a P/E of about nine. The yield is around the the FTSE 100’s 4.3% average.
For new investors, the blip in performance creates an opportunity this Halloween to pick up shares in what should be two good companies at historically low prices.
