This global software business has built a reputation for its ability to help customers utilise new technology and bring struggling IT infrastructure systems up-to-date. For many companies, the cost of keeping up to date with the fast-moving tech world is more than they can afford, so the solutions Micro Focus offers have seen strong demand. Between 2012 and 2014 the group’s revenue expanded a total of 218% thanks to organic growth and bolt-on acquisitions.

However, recently it seems as if the group has fallen off the rails following its enormous acquisition of HP Enterprise’s software business. 

A bad deal 

This $8.8bn deal was supposed to transform Mirco Focus, but instead, management has struggled to integrate the acquired entity and now this deal is taking up so much time the core business is suffering. According to the company’s first-half results, which were published at the beginning of this year, for the six months to October overall revenue grew by 80% but the HP operations (which now account for just over two thirds of revenue) grew at the bottom end of expectations while the legacy Micro Focus business saw sales decline by 7%.

It looks to me as if Micro Focus has bitten off more than it can chew with the HP deal and earnings might continue to suffer for the foreseeable future. With this being the case, even though the shares trade at a relatively attractive forward P/E of only 13.6 and support a dividend yield of 3.9%, I would avoid the company for the time being until organic growth returns.

Proven record of returns for investors

One business I’m more positive on the outlook for is small-cap private equity company B.P. Marsh (LSE: BPM). 

This firm buys stakes in other financial services businesses, mainly located in the insurance sector, sits on these holdings and eventually sells them, usually for a substantial profit. Over the years the company has proven itself to be incredibly adept this strategy. Between its founding in 1990 and January 2017, net asset value has grown at a rate of 11.4% per annum. Over the same period, a similar investment in the FTSE 100 produced an annualised return of just under 5% excluding dividends.

Talking of dividends, B.P. Marsh has always returned any excess cash to investors via dividends and today announced a 26% increase in its full-year distribution to 4.8p giving a yield on the shares of 1.9%.

Deep discount

The most attractive quality of the stock is currently its valuation. Even though it has grown net asset value per share at a double-digit rate for the past two-and-a-half decades, the shares now trade at a deep discount to net asset value. Specifically, the company reported that at the end of July 2017, net asset value had risen to 304p per share, nearly 20% above the current share price.

So overall, B.P. Marsh is a highly successful private equity business that’s currently trading at a discount to net asset value. That’s why I believe the stock is a better buy than struggling tech group Micro Focus.

The post 1 cheap small-cap I’d buy over this expensive FTSE 100 growth stock appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in B.P. Marsh. 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.