Broker tips: Micro Focus, K3, Hightex

Investors spooked by the chairman of Micro Focus, Kevin Loosemore, selling a third of his shareholding in the business software maker might feel a lot more sanguine about the company's prospects once they know the circumstances behind the sale, Panmure Gordon reckons."Mr. and Mrs. Loosemore have just completed the purchase of a property, but are not in a position to sell the current family home. In order to fund the purchase the family liquidated all other investments and sold 200,000 Micro Focus shares," explained Panmure analyst George O'Connor."Mr. Loosemore tells us that he remains convinced of the potential value in Micro Focus shares as evidenced by the fact that he, and his wife, still hold 400,000 shares. To remind investors Mr Loosemore built his holding from his own resources and over the past five years has acquired 600,000 shares," O'Connor added.The broker remains "relaxed" about its current "buy" recommendation."We like the Micro Focus business, the track record of cash generation, the wider opportunity as the legacy applications modernisation company, the 'selective acquisitions' strategy, the enviable customer base (18,000+ customers, 2m+ licensed users) and the delivery team. Investors expecting another profit warning at interim results were disappointed and now with the new Silk' (i.e. Test) products in revenue generation, Micro Focus can address the investor gripe of 'where is the growth supposed to come from?' Doubting Thomases - get your fingers ready!" advises the broker.The latest acquisition by Microsoft based business solutions provider K3 Business Technology should be earnings enhancing and drive growth in recurring revenues, Edison Investment Research reckons.K3 has acquired certain assets of FD Systems Ltd, specifically its Sage 200 business unit, for a total consideration of £1.25m. The deal adds around 330 Sage 200 customers to K3's existing customer base, Edison notes, and opens up the opportunity for some cross selling.The research house has revised its forecasts for K3 as a result of the acquisition, bumping up forecasts revenues by 2.2% for fiscal 2011 (FY11) and by 3.7% for fiscal 2012 (FY12). " We estimate that the deal will be earnings enhancing, driving increases of 2.3% and 4.2% respectively to FY11 and FY12 normalised earnings per share. We estimate the deal will increase K3's net debt position from £11.5m to £12.8m at the end of FY11 and £8.0m to £9.0m at the end of FY12," Edison said.Based on these revised estimates K3 trades on a price/earnings multiple "towards the low end of its peer group". "We believe that K3 can continue to re-rate if it can successfully integrate recent acquisitions and cross-sell hosting services to the newly acquired customer bases," the research note concluded.Shares in membrane roofs expert Hightex Group put on a spurt Thursday morning after the company won a €2m contract, but house broker finnCap notes that even after the surge, the shares are still only trading on a projected 2011 earnings multiple of just 5."All of the revenue [from the contract] will be in the 2011 financial year. This takes visible 2011 revenue to c€17m, 43% of our full-year forecast of €40m," notes analyst Mark Paddon.The broker is not making any changes to its earnings forecasts following the announcement. It continues to predict 2011 profit before tax of €4.0m and earnings per share of 1.5 cents.