Broker tips: Micro Focus, Hammerson, Barclays, Tesco

Keep the faith! was the message from Barclays for investors in Micro Focus following the prior day's faith-shattering near halving in the company's share price.

The analysts conceded they had underestimated the "level of disruption" that the acquisition of HPE Software would throw up and - above all - the market's tolerance for mis-execution.

Fresh changes at the helm of the company were also unsettling, they admitted, but went on to add that to question the health of the company's balance sheet was simply going too far.

Hence, they reiterated their 'overweight' recommendation and 1,500p target price.

"Further management change is unsettling, but the debate has seemingly moved to the health of the balance sheet. This, for us, is a step too far and despite the challenges we believe MF remains a highly profitable and cash-generative business," they said.

Deutsche Bank, on the other hand, appeared to be rather less positive, slashing its target price for the shares from 2,800p to 780p.

Credit Suisse upped its price target on neutral-rated Hammerson a day after it emerged that it recently rejected a £5bn bid from French shopping centre operator Klepierre, a scenario it deems to be more likely to go ahead than the planned acquisition of Intu Properties announced in December.

The bank lifted its price target to 550p from 460p after Hammerson confirmed that it had rejected Klepierre's 615p a share offer. It said that although the bid was rejected within 24 hours, given that it represents a 41% premium to last Friday's share price, some of Hammerson's shareholders could be tempted to extract a formal proposal.

"Last week we re-opened our rating differential between Hammerson and Intu based on a decreased probability that Hammerson’s takeover offer was successful; Klepierre’s announcement further reduces that likelihood," it said.

Credit Suisse also said it's possible that a higher committed offer for Hammerson emerges from another party, although it does not expect this.

Its revised price target on the stock is based on a probability weighting of three scenarios: a 30% probability of a combination with Intu at a 25% discount to its pro forma spot NAV of 610p; a 50% probability of committing to the 615p indicative offer; and a 20% probability of Hammerson remaining independent at a 20% discount to stand-alone spot NAV of 679p.

CS added that if Hammerson shareholders accepted Klepierre’s indicative proposal, its shareholders would diversify their exposure across Europe, in contrast to the UK concentration that would result from a combination with Intu.

Analysts at JP Morgan Cazenove reiterated their 'overweight' stance and 250p target price for shares of Barclays following activist shareholder Sherbourne's disclosure of a 5.2% stake in the outfit and a meeting with its finance chief, Tushar Morzaria.

Above all, they said they were comfortable that management's targets were aligned with the overriding aim of shareholders' - to close the shares' discount to their tangible net asset value.

"We came away constructive on our investment thesis which projects an improvement in ROTE to 9.8% 2020E driven primarily through growth, self-help measures (including legacy debt refinancing and cost cuts) and an increasing focus on capital return," analysts Raul Sinha, Sheel Shah and Kian Abouhossein said in a research note sent to clients.

They further pointed out that "significant" changes to the group's strategy were unlikely at this stage as after many years of restructuring, the CT1 capital buffer was now higher than that required by regulators and the drag on earnings from non-core assets had receded.

Thus, any "major" change in the lender's strategic aims would restart the restructuring cycle, the analysts said.

On top of that, the fact that Lloyds - the proxy for a UK business with a high return on tangible equity - was trading on just 8.3 times' analysts' 2019 estimates for profits "creates an unhelpful pushback to the sum of parts argument," they argued.

In particular, JP Morgan chose to highlight how "50% of the 2018-20E LTIP is driven by ROTE with max. vesting at 10.25%."

Commenting on the assumptions underlying their sum-of-the-parts-based target price, JP Morgan said Barclays's UK earnings had been valued at a price-to-earnings multiple of 10, with a P/E multiple of 8.0 applied to its Commercial and Investment Bank and a multiple of 9.0 to its Consumer, Cards and Payments unit.

Yet as an aside, on the same day analysts at Citi were out reiterating their 'sell' recommendation and 150p target on Barclays, following a meeting of their own, but with chief Jes Staley.

Lastly, JP Morgan has added Tesco to its list of 'overweight' best European equity ideas while removing Just Eat and Persimmon from the rankings.

Tesco's inclusion into JP Morgan's shopping list followed an enthusiastic note from JP Morgan analysts about the supermarket chain in which it highlighted its recent acquisition of Booker.

That transaction, the analysts argued at the time, helped make Tesco a "visible turnaround" story based on cash generation.