Broker tips: Micro Focus, Punch Taverns, Trinity Mirror
UBS downgraded Micro Focus International to ‘neutral’ from ‘buy’ and cut the price target to 2,350p from 2,420p citing near-term risks.
“Notwithstanding H1's good results and a $400m planned return of value, we see the upside for the shares as limited now,” the bank said.
It highlighted several risks for next year. It pointed out that HPE has to execute a significant ($700m) carve-out process on its software assets to make them ready to pass on to Micro. UBS said there are risks of delays to the deal's closing, due in August 2017, and of disruption to sales execution within HPE Software before or around closing.
“We note that Micro Focus is due to take on the assets at the start of HPE Software's fiscal Q4 which last year accounted for nearly 40% of full year licence sales and profits.”
In addition, the bank argued that Micro Focus’ cash flow is likely to show the effects of significant legal and advisory fees related to the deal ahead of its closing, and restructuring commitments are likely to be a feature thereafter.
Finally, UBS said there are flow-back risks around the deal which will see HPE shareholders own half the combined company on closing.
Analysts at Canaccord Genuity hiked their target price for shares of Punch Taverns following the company's acceptance of the 180p per share cash offer from Vine Acquisitions, the acquisition vehicle for Patron Capital and Heineken.
The bid, which had been accepted by the company's top three shareholders and its directors, mustered the support of 52.3% of the share capital, but required the backing of 75.0% via a scheme of arrangement.
A Court Meeting was to be held at a date to be agreed in the first quarter of 2017 and Vine had reserved the right to increase the amount of its bid should Emerald, the vehicle for Alan McInstosh, table a higher offer of 200p or more.
Nigel Parson at Canaccord dubbed the ability of Punch's Board to pit the two suitors for the company against each other as "brilliant".
Emerald had been required by the Take-over panel to make a bid no later than seven days before the Court Meeting.
The bid price equated to a 100% premium over the price of the stock prior to the first approach on 7 July and valued its equity at £403m which in turn equated to an enterprise value of £1.8bn and an exit multiple of roughly ten times EV/EBITDA for the year ending Augist 2016.
Parson upped his target from 110p to 180p and kept his recommendation at 'hold'.
Numis reiterated a ‘buy’ rating and target price of 210p on Trinity Mirror after the British newspaper publisher reported an “encouraging” trading update on Friday.
While Trinity said it sees group revenue falling by more than 8% like-for-like in the fourth quarter, it said its performance for the full year will be “marginally ahead” of expectations. Numis also noted that the decline in revenue marks an improvement on the third quarter's 9% fall.
The company said publishing revenue is forecast to dip 8% in the last three months of the fiscal year as a 10% slide in print offsets an 8% increase in digital.
Print advertising revenue is expected to decrease by 17% while circulation revenue is estimated to dip 5%.
Numis raised its lower end forecasts for full year pre-tax profit and earnings per share by 5% to £131.0m and 36.8p, respectively. The broker said an expected net debt of £35m by year end was better than its estimate for £87m, aided by disposals.
“We retain our Buy recommendation and view Trinity Mirror shares as materially undervalued compared with our price target of 210p,” Numis said.