Market Report: Fall helps Micro Focus' takeover credentials
Thursday 17 February 2011
Investors in Micro Focus were given some hope yesterday after its disastrous session on Tuesday, when it lost more than 25 per cent of its value, as they were told it was now more likely to be the target of a takeover attempt.
The software group dropped over 100p earlier in the week thanks to a profit warning - its second in six months - but last night it advanced 5p to 296p, with analysts expressing their confidence that there would be no more dramatic dips.
Among those urging the market to take stock was Singer Capital Market's Tintin Stormont, who reduced the company's price target to 330p but kept his "buy" advice on the stock. There has been speculation in recent months that Micro Focus could attract an approach, and Mr Stormont said he believed "at this level, [it will] look very attractive to players like IBM and HP."
The analyst praised its cash generation as well, giving this as another reason why although "estimate momentum has been poor and confidence in the business is shaky, we believe there is enough support at these levels".
Also relatively positive on the group was Panmure Gordon's George O'Connor, who changed his recommendation from "hold" to "buy" and said "the problems are identified and in our minds fixable".
Meanwhile Numis Securities' David Toms said Micro Focus was "substantially undervalued and will either demonstrate this through near-term operational performance, or will become a strategic target".
Despite disappointing domestic data, the FTSE 100 managed to add 48.19 points and close at 6,085.27, helped by the banks continuing to move forwards following strong results from Barclays - up 3.25p to 332p - on Tuesday.
The blue-chip real estate investment trusts (Reits) were building towards the summit, thanks to a large note on the sector by HSBC. Despite its analyst Nicolas Lyle saying he was wary of "UK Reits' potential as an inflation hedge", he upgraded his rating on British Land to "overweight" and Land Securities to "neutral", prompting a rise of 14.5p to 557.5p and 25p to 727p respectively.
The latest figures from Heineken seemed positive for SABMiller, which finished 3.5p ahead at 2,106p. The Grolsch-brewer's rival revealed forecast-beating numbers, thanks in part to savings made, and it also issued a bullish outlook on Africa and Latin America, both regions in which SABMiller has a strong exposure.
There was a boost of 2.4p to 140p for RSA Insurance, as market gossips became excited over the return of vague takeover talk around the company, with speculation spreading that it could be about to receive an approach.
Resolution shot up 16.6p to 280.6p as Redburn started its coverage on the Clive Cowdery-owned investment vehicle with a "buy" note. Meanwhile a positive initiation also helped GKN - 9.3p stronger at 217p - as Investec said it was "benefiting from volume recovery in its core automotive and industrial markets".
African Barrick Gold and BHP Billiton both released figures, but the miners saw rather different reactions. The former gained 5p to 532p, as its earnings for the 12 months beat expectations, but the latter finished 36p behind at 2,464p despite revealing record profits.
There was little movement on the second line for PartyGaming, which edged down 0.1p to 174.8p, as analysts disagreed on what the future will bring after it merges with bwin.
Noting that the new company's shares are set to start trading on 1 April, Morgan Stanley said the deal was "not an April fool", adding that the gambling company's "valuation is far too low". However, Investec's Paul Leyland was much more cautious, especially on Germany, where he said there is a "real risk" that online gambling could be effectively banned.
The gold medal position on the mid-tier index was taken by Premier Foods, 2.15p higher at 27.9p. Credit Suisse increased its advice to "outperform" in the wake of its final results on Tuesday, and said that the group - which recently announced the disposal of its Quorn and canning units - "should now be able to renegotiate its debt from a much improved position".
Just behind after a surge of 22.5p to 299p, Morgan Crucible issued a bullish prediction alongside its full-year numbers, saying that it plans to double its underlying pre-tax profit by 2013.
DOWN AMONG the small-cap stocks, Mouchel increased 8p to end the day at 138p as Costain said that discussions had been held between the two over its latest approach for the services company. The construction group, which slipped 4p to 240p, made its third attempt last month with a proposal worth £170m.
Among those moving on the Alternative Investment Market was Lo-Q, whose virtual queuing systems can be found in Dollywood as well as a number of other attractions and theme parks. It was 17.5p better off at 145p as its profit after tax increased by over 20 per cent.
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