Barclays downgrades Micro Focus to 'equal weight' following share price recovery
Analysts at Barclays downgraded their recommendation on software and information technology business Micro Focus to 'equal weight' on Friday as part of a wider review of the European software and services industry's first quarter performance.
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With Micro Focus' share price increasing 44.5% in the first quarter, outperforming the Eurostoxx Tech at 16.6% and completing its recovery to above the levels seen immediately before its 2018 profit warning, Barclays said the group had made "very significant since the warning."
"We are encouraged by the progress and anticipate ongoing positive momentum in earnings. However, while the stock still looks cheap on headline P/E, it has, in our view, reached fair value on an enterprise basis," said Barclays.
The analysts did concede that, in addition to its strong full-year performance described, perhaps most importantly, Micro Focus demonstrated a "materially improved" second half trajectory, suggesting that its 4-6% decline guidance for 2019 was well underpinned and that management was committed to "no further negative revisions", offering support to shares ahead of soft first half comparisons.
Elsewhere, Micro Focus reiterated its full-year guidance with its recent annual general meeting statement, although the group provided little further colour on the business.
However, Micro Focus did release a shareholder circular concerning its upcoming cash return. It will return $1.8bn, in addition to the $500m of buybacks already completed - ahead of the total $2bn return anticipated by Barclays.
"We update our model for the higher cash return, but the additional accretion is offset by a higher share price assumption in our model, given the recent rally in the name."
Barclays also issued Micro Focus with a £20 per share target price.