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Citi slashes Micro Focus target price

By Michele Maatouk

Date: Monday 24 Feb 2020

Citi slashes Micro Focus target price

(Sharecast News) - Citi slashed its price target on shares of software company Micro Focus to 680p from 1,000p on Monday, as it highlighted ongoing risks to execution.
The bank, which kept its 'sell' rating on the stock, noted the shares have fallen around 20% since the FY19 results and around 60% since April 2019, as its negative thesis based around risk of potential reset of the company's financial targets and consensus expectations and likely balance sheet challenges amid contracting profit and loss continued to play out.

"Additionally, the awaited outcome of 'strategic review' was underwhelming, in our view," it said.

"We still see the mid-to-long term risk-reward skewed to the downside with persistent execution challenges and concerns around lack of definitive steps/low confidence in execution plan, outweighing the seemingly supportive valuation."

In its preliminary results earlier in February, Micro Focus reported a decline in full-year profit and sales and announced the departure of its chairman, following what it referred to as a "challenging" year.

Micro Focus said revenue in the year to the end of October 2019 fell 7.3% to $3.35bn versus consensus expectations of $3.38bn. The revenue fall was attributed to volatile macroeconomic conditions and "changing buying behaviour", which led to the delay of customer investment decisions and "inconsistent execution".

This was further impacted by the greater-than-expected complexities arising from the integration of the Hewlett Packard Enterprise (HPE) software business acquisition, it said.

At 1235 GMT, Micro Focus shares were down 4.9% at 750.70p amid a broader market slump.

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