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Micro Focus downgraded to ‘neutral’ as UBS predicts ‘long and difficult road ahead’

The bank said it saw “no near-term catalyst” for the share price as the troubled software group continued its restructuring efforts

Micro Focus International plc - Micro Focus downgraded to ‘neutral’ as UBS predicts ‘long and difficult road ahead’

Micro Focus International plc (LON:MCRO) has been downgraded to ‘neutral’ from ‘buy’ by analysts at UBS who have predicted a “long and difficult road ahead” for the software firm.

In a note on Thursday, the Swiss bank, which also slashed its target price to 810p from 1,530p, said the company’s results for 2019, when it reported a 30% drop in adjusted pre-tax profit to US$3.3bn, were “disappointing" and that the firm’s restructuring programme was likely to squeeze profits even if other benefits began to be felt.

READ: Micro Focus completes business review, chairman steps down

“A healthy dividend yield will reward patience if management executes [the restructuring], but with H1 20 revenues expected to fall c9% (in line with H2 19) and deleveraging very gradual, we see multiples as likely to remain depressed”, UBS said.

The bank added that unless there was evidence of “stabilisation in revenue trends”, a re-rating of the stock was “unlikely” and they saw “no near-term catalyst” for the share price.

Micro Focus delivered its 2019 results in early February following a torrid year that saw it demoted from the FTSE 100 index.

The company also announced the departure of long-serving chairman Kevin Loosemore, who will soon be replaced by experienced chair Greg Lock.

Micro’s restructuring plans have led to changes in its portfolio that are expected to cost between US$70mln and US$80mln in each of the next two financial years.

The shares were 1.5% lower at 789.1p in late-morning trading.

Quick facts: Micro Focus International plc

Price: 400 GBX

Market: LSE
Market Cap: £1.34 billion


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