Could Micro Focus International plc and this stock be millionaire makers?

Shares in digital publisher and media company Future(LSE: FUTR) rose around 5% today on news of the acquisition of US content business Newbay Media LLC. The deal involves an initial payment of £8.62m cash and £1.09m in shares, with a deferred additional payment of up to £3.94 due in January 2019, depending on the future performance of the Newbay business.

Pushing into the USA

Future is well versed in the art of acquisition and integration. Chief executive Zillah Byng-Thorne said: "This deal will be earnings enhancing and drive further organic growth in revenue and profitability in the first full year." Newbay's business operates in TV & video, entertainment & educational technology, and music. There's a clear synergy with Future's existing media and magazine business, and one of the prime motivations for the firm's move on Newbay is that the acquisition will expand its reach into the US market. The company also said that Newbay's business-to-business (B2B) titles will increase revenue diversification and bring B2B expertise to Future's existing titles, which provides an opportunity to ratchet up revenue across the portfolio.

Future's trading during the first half of the year was "strong" with last year's momentum following through. The company's story is that of a new digital business emerging phoenix-like from the dying embers of the old, as revenues from the paper magazine division continue to decline. Revenue growth from the media division more than offset the decline, with the US putting in a strong performance for the firm. We can see why Newbay is so important to the firm -- Future is building on its strengths.

City analysts expect earnings to decline 5% in the year to September 2018 and to rise 8% the year after that. The chart displays a strong uptrend, suggesting the market expects decent operational progress in the years ahead. At today's share price around 404p, you can pick up the stock on a forward price-to-earnings (P/E) ratio close to 17, which could prove to be an attractive valuation if growth in the US takes off.

Short-term challenges?

I think Future's growth potential would sit well in a portfolio alongside the turnaround hopes of Micro Focus International(LSE: MCRO). It's not often that you see a FTSE 100 firm's share price plummet so quickly, but the software company's stock sits more than 50% lower than it did just a month ago, due to its well-reported March 19 profit warning. Sales are down because of issues arising from the firm's gargantuan $9bn acquisition of Hewlett Packard Enterprises' software business. The integration process is causing Micro Focus indigestion problems.

Sales may be down a bit, but is the market's reaction to this profit warning extreme? After all, City analysts expect positive earnings growth going forward, and the directors believe the integration challenges are short term with the acquisition thesis remaining intact.

At times like this, the market can be unforgiving and may yet be correct to assign the firm its current low rating of seven times historical earnings. Such uncertainty is the meat and veg of the turnaround investor, but I reckon the first sign that the company has the integration back on track could trigger a valuation re-rating upwards.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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