Micro Focus is a 'core cash-backed value opportunity' in the software and computer services sector, according to Investec which has reiterated its 'buy' rating and 600p target price on the stock.
The group's first-quarter trading statement on Thursday was broadly in line, with growth in licences and declines in maintenance leaving earnings before interest, tax, depreciation and amortisation (EBITDA) on track to meet expectations.
The firm did highlight a $13m FX impact on sales, but Investec says that this was already factored into forecasts.
However, the big news was that the company would be undergoing a 50p-a-share cash return, equal to $130m, and a share consolidation.
"We have already modelled this level of return in our forecasts, but assumed it would occur mid-way through the year, so the timing could lead to a 1-3% earnings per share (EPS) uplift to our forecasts," Investec said.
For those who haven't factored this into their own numbers, EPS upgrades in the region of 5-10% could be in order, the broker added.
"We see Micro Focus as a core cash-backed value opportunity in the sector, with today's cash return supporting this view. With more cash returns likely down the line, and forecast expectations sensibly set, we remain 'buyers'."
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