Broker snap: Micro Focus running out of steam

11th Aug 2010 10:57

Business software group Micro Focus saw its shares slump by almost a third on Wednesday morning as the company announced that some large deals have been delayed and that organic revenue growth this year would therefore be lower than previously expected. KBC Peel Hunt notes that the shares had hardly been setting the heather on fire prior to Wednesday's trading update, and that the company's share price had been "suffering from post-acquisition blues as attention turns to organic growth rates," which made the need to deliver top line growth all the more important. The broker has downgraded its organic revenue growth forecast for the current year from 5.5% to 2%, but is provisionally maintaining its profit before tax forecast, which would imply earnings before interest, tax, depreciation and amortisation margins of 41%, upgraded from 40%."With confidence already fragile and an H2 [second half] weighted year, Micro Focus's rating will not start to reflect ambitions for double digit growth in the medium term," concedes KBC analyst Alex Jarvis.The broker has cut its recommendation from "buy" to "hold", with the share price supported by a 3.7% yield and projected price/earnings ratio of 11.