Broker snap: Micro Focus under the microscope

24th Jun 2010 12:58

Results from software house Micro Focus were robust but the market appears to have taken fright at the departure of finance director Nick Bray so soon after the appointment of a new chief executive officer. The two events are related, Panmure Gordon suggests, and though the broker said Bray will be missed it thinks an experienced replacement with knowledge of the sector should not be hard to find.Singer Capital Markets said Bray's departure "will clearly be a disappointment to investors who would have wanted to see some continuity with recently appointed CEO [chief executive officer] Nigel Clifford, who is meeting analysts for the first time today, and because of Nick's strong track record whilst he was at Micro Focus."According to Panmure Gordon, the chairman of Micro Focus thinks a replacement could be in place by the end of the summer.Despite the departure of the well regarded Bray, Singer says the company is fundamentally "still one of the strongest companies in the sector." Though the stock trades at a premium to its peers - or at least it did before the share price dived following the trading update - the broker continues to advise its clients to buy the stock.Panmure Gordon is also a fan of the stock and laments that "the investment community has it wrong on Micro Focus and underestimates the importance of the application modernisation opportunity - our view is that the development of cloud computing makes 'all' applications legacy and thereby further widens the opportunity."Panmure analyst George O'Connor thinks the 12.1 price/earnings ratio is "undemanding" while the free cash flow yield of 9.2% is "impressive". He has nudged up his price target to 626p from 624p and reiterated his "buy" recommendation.