Numis sees "further good upside" at Micro Focus

19th Jun 2014 12:53

Numis Securities has upgraded its forecast for Micro Focus after the software group beat guidance and analysts' forecasts on Thursday.While the broker has lowered its recommendation for the stock from 'buy' to 'add', it still said that the "rating is not demanding and we see room for further good upside". It left its 920p target price unchanged.The company reported 6.4% growth in annual revenues at constant currency to $433.1m, compared with the 3-6% increase guided to."In essence, MCRO has delivered our fiscal-year 2015 operating forecasts a year early," Numis said.Meanwhile, the broker said that cash was "typically strong" with management raising their net debt-to-operating profit ratio target from 1.5 to 2.5. This new target "gives the capacity to return $140m/year until 2020, or to spend at least $200m on acquisitions whilst returning $140m for at least three years".Numis said that the valuation "still feels too cheap given positive estimate momentum and the clear signal that capital will continue to be deployed in a shareholder friendly fashion".The broker's 'add' recommendation implies that there is 10-19.99% upside from current prices, compared with a 'buy' rating which implies at least 20% upside.Micro Focus was trading 4.3% higher at 870p by 13:12.BC