Broker snap: Microfocus downgraded to Hold at Investec

4th Dec 2013 11:29

Applications testing-software provider Micro Focus has a very valid business strategy but the company´s strategic decision not to focus on half-year targets means investors have to place a high degree of faith in management´s ability to control the ups and downs in each division, analysts at Investec wrote on Wednesday.That is no mean task in an outfit which delivers over 300 products and has five divisions, which means there are myriad moving parts for investors to try and track. As well, the shares are trading near the broker´s price target of 850p, or 11 times their estimated enterprise value/earnings before interest expense and amortisation (EV/EBIA) multiple, and there is a lack of catalysts to justify a higher multiple. For those reasons, Investec has moved to a 'Hold' on the stock from a 'Buy' previously. Worth noting is that management was at pains at the most recent analyst meeting to highlight the importance of not over-focusing on any one operational data point in a period, Investec explained, as well as offering only modest guidance so as not to introduce forecast risk. Furthermore, the firm´s targets already supprt sharholder returns of between 15% and 20% per year based on cash return and EPS growth.AB