Market Report: Bid hopes and cost cuts boost Micro Focus
Tuesday 28 June 2011
Claims investors are underestimating both the likelihood of a bid and the positive effects of recent cost-cutting measures gave a boost to Micro Focus yesterday, helping the software company rise up the mid-tier index.
A long-time favourite of market gossips, the group revealed back in April that it had received an approach, but since then its share price has slid nearly 8 per cent, despite revealing last month a number of companies had made their interest known.
As well as being hit by rising fears over whether the continuing talks will result in a bid, Micro Focus's recent preliminary results saw it fall nearly 8 per cent in one session. Last night, however, it finished 6.7p higher at 333.1p after Matrix's Rajeev Bahl reiterated his "buy" advice, saying the group was "attractive both on a standalone basis and as a potential bid target".
"With the shares below the undisturbed price (prior to bid speculation in April), very little is being priced in for a bid," said the analyst, who estimated an offer could come in between 450p and 455p a share. Anything below that range, he calculated, "would make it the cheapest acquisition in the software tools and infrastructure space since before 2005".
However, even without an offer emerging, said Mr Bahl, the company's revenue and margins could beat market expectations, thanks in part to its attempts to cut costs.
With everyone nervously awaiting tomorrow's vote by the Greek parliament on the proposed austerity measures, there were signs of some cautious optimism on the FTSE 100, which rose 24.62 points to 5,722.34.
Nonetheless, it was a mixed session for the banks, despite their French peers agreeing a deal to roll over Greek debt, after global bank capital requirements were tightened over the weekend. Barclays crept up 0.25p to 237.55p while Lloyds Banking Group stayed steady at 43.40p, and Royal Bank of Scotland was pegged back 0.56p to 35.09p.
The miners were largely in the blue after HSBC suggested the recent uncertainty around the sector had provided "a good opportunity" for investors. The broker said it expected metal demand to remain strong "even if economic growth moderates," and upgraded its advice on BHP Billiton (up 12.5p to 2,313p), Anglo American (up 27.5p to 2,882.5p) and Vedanta Resources (up 57p to 1,905p) to "overweight". The latter was also helped by its acquisition of 40 per cent of Cairn India from Cairn Energy – 4.4p ahead at 383.6p – having its price reduced by over $600m.
AstraZeneca was looking rather poorly, dropping 33p to 3,026p following the news over the weekend that a late-stage clinical trial had associated its new diabetes pill dapagliflozin with bladder and breast cancer. The pharmaceutical group was also knocked by Liberum Capital reiterating its "sell" recommendation and cutting its forecasts for Crestor, Astra's top-selling drug, in the US.
Northumbrian water has been a persistent subject of speculation, and yesterday the rumours proved spot-on as Cheung Kong Infrastructure Holdings announced it was considering making a cash offer. The utility was lifted 30.5p to 413.5p and topped the FTSE 250, prompting rises among its peers, including Severn Trent, 27p higher at 1,415p, and United Utilities, 19p ahead at 587.5p – both of which have also been the subject of bid chatter.
Centrica, meanwhile, edged forwards just 0.3p to 323.7p, despite Investec keeping its "buy" rating. As well as positive comments on the British Gas owner's operations in the US, the broker said its tie-up with Qatargas was "likely to be extended," adding "ultimately, it would not surprise us to see a direct investment in Centrica from the Qatari Investment Authority or some similar body".
Despite posting a first-half profit for the first time ever, Ocado's share price plunged 9 per cent following its interim results as the online grocer slid 17p to 170p. However, it did find a friend in Numis Securities' Andrew Wade, who upgraded his rating to "add" from "hold", saying he was "encouraged by the success of [its] strategic initiatives".
Charter International was 21.5p stronger at 596.5p after announcing the resignation of its chief executive Michael Foster in the wake of the tool manufacturer's profit warning last week, which prompted its share price to plummet 25 per cent in one session and led to suggestions it could become a bid target.
There was an increase of 2p to 39.52p for Cable & Wireless Communications as AXA Private Equity bought a 52 per cent stake in its French peer Outremer, leading Deutsche Bank to say it showed there were "a number of potential buyers for even the most far-flung parts of CWC's portfolio".
Down on the Alternative Investment Market, Madagascar Oil's share price lost more than half its value, sinking 39p to 35p, as the explorer resumed trading after ending its dispute with the Madagascar government.
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