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Micro Focus hit by Numis downgrade after warning on full year revenue

Numis cut its rating on the stock to ‘hold’ from ‘buy’ with a target price of 2,010p

Micro Focus
Numis lowered its earnings forecast on Micro Focus

Micro Focus International PLC (LON:MCRO) shares plummeted as Numis downgraded the stock after the software company cut its revenue guidance and announced the departure of its chief executive.

The FTSE 100 firm said revenues were weighed down by problems stemming from its purchase of Hewlett Packard Enterprise software assets in September 2017.

READ: Micro Focus shares tumble as it cuts revenue guidance, CEO resigns

It also encountered issues with the implementation of a new IT system, which had an impact on the running of its sales team.

In an effort to offset the lower revenues, Micro is cutting costs but analysts at Numis reckons it won’t be enough to compensate for the challenges it faces.

"Furthermore, management indicates that the current period is seeing a worse performance, thus the six months to April 2018 is expected to show revenue down 9-12% year-on-year," Numis said.

"This implies that licences could be down 20-30% in the April period."

Numis cut its rating on the stock to ‘hold’ from ‘buy’ with a target price of 2,010p.

The broker also lowered its forecasts for underlying earnings (EBITDA), earnings per share and free cash flow by 10-14%.

Numis noted the issues with the new IT system are being remediated but not as rapidly as planned. “In addition, previously flagged sales execution and turnover issues remain a challenge,” the broker said.

However, net debt is in line with consensus, there no material covenants and the business remains highly cash generative, Numis added.

Shares in Micro Focus plunged 55% to 835p in morning trade.

Quick facts: Micro Focus International plc

Price: 1094 GBX

LSE:MCRO
Market: LSE
Market Cap: £3.65 billion
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