Canaccord cuts Micro Focus International's rating to 'hold'

Canaccord Genuity has cut Micro Focus International’s rating to ‘hold’ from ‘buy’ but lifted its target price to 2,000p from 1,700p.

“We are updating our price target and forecasts to reflect the better-than-expected recent full year results and the impact of dollar strength,” Canaccord said.

“We are also moving our recommendation from ‘buy’ to ‘hold’ as we expect the shares to pause for breath following a strong run. Our price target moves from 1700p to 2000p to reflect the beneficial impact of a stronger dollar and c10% upgrade to our earnings forecasts.”

On 14 July the software product group reported a 59.1% increase in underlying adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to $532.5m on a 54.9% jump in revenues to $1.24bn on a constant currency basis. Micro Focus said the results beat its expectations, driven by a strong performance of its product portfolio under its data and cloud storage business SUSE where revenues grew 18.2%.

Canaccord has raised its EBITDA estimate for fiscal year 2017 to $639m from an earlier forecast of $556.1m following the results. The broker’s net debt estimate of $1.3bn represents just over two times this EBITDA forecast.

“The Micro Focus management team maintains an efficient balance sheet and one consequence of this was a final dividend increase of over 50%. This leaves the stock yielding just over 3% despite the recent strong performance of the shares.”

Shares rose 0.90% to 2,013p at 0904 BST.