Micro Focus International Plc

Micro Focus International PLC (MCRO) is a British company engaged in delivering and supporting software solutions, with a focus on offering an invariably high level of consumer satisfaction through extraordinary product implementation. The company operates five portfolios with approximately 500 product lines and help around 40,000 customers, ranging from small and medium-sized enterprises to most of the companies listed in the Forbes Global 2000. The group is a leading infrastructure software company with a global scale and is the largest technology company listed on the FTSE 100 Index.

Recent News
On 14th February 2019, Micro Focus announced the acquisition of Interset. Interset is a worldwide leader in the security analytics software that includes accurate cyber-threat protection and highly intelligent, which will add depth to Micro Focus' Security, Risk & Governance portfolio.
Financial Results and Review – Financial Year 2018 ($, million)


(Source: Annual Report, Company Website)

Micro Focus Plc’sreported revenue was $4,754.4 million for the 18 months ending October 2018 against $1,077.3 million for the 12 months ending April 2017. There was an increase of 341.3 per cent mainly because of an increase in trading by the acquisition of the HPE Software business, which has materially increased the scale of the operations combined with the longer period of account. The Group’s operating profit for 18 months ending October 2018 stood at $376.8 million, which represents a surge of 65.7% as compared with $227.4 million for 12 months ended 30 April 2017. The operating profit increased mainly because of change in the accounting period and the acquisition of HPE Software business. Net finance costs were $336.9 million in the 18 months ending October 2018. Finance costs include the interest on the new loans taken by the company for acquisition of HPE Software business. The Profit before tax for 18 months ending October 2018 stood at $34.1 million as compared to $131.6 million for 12 months ending April 2017. The Group’s reported tax for the 18 months ended October 2018 was a credit of $673.1 million primarily due to the one-off impact of US tax reforms. The Profit for the period for 18 months ending October 2018 stood at $784.1 million as compared to $157.8 million for 12 months ending April 2017.

Share Price Performance

Daily Chart as at April-05-19, before the market close(Source: Thomson Reuters)
 
On 5th April 2019, at the time of writing (before market close, GMT 10:35 AM), Micro Focus International Plc shares were trading at GBX 1,954.00, up by 0.51 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 2,084.00/GBX 1,075.00. The outstanding market capitalisation was around £8.03 billion with a dividend yield of 4.58 per cent.
 
Conclusion
The company is impacted by multiple risks which would result in a significant decline in its market value. The major risk is associated with the product created by the company if the products do not meet the requirements of customers, they will seek alternative solutions, resulting in the loss of new revenue opportunities and the cancellation of existing contracts. Insufficient focus on key research and development projects may damage the long-term growth prospects of the Group. Another risk is associated with the selling criteria used by the company, Poor design and/or execution of GTM plans may limit the success of the Group by targeting the wrong customers through the wrong channels and using the wrong product offerings. Further, the company might Fail to understand the competitive landscape adequately. Competitive threats exist may damage the successful sales of the Group’s products. Presently the stock is trading near its 52- week high and there had been significant increase in the financial performance with the acquisition of HPE software business and interset. Based on strong fundamental performance and stock trading on the higher side, we have given a “Hold” rating at the closing price of GBX 1,944 (as on 4th April 2019).
 

Lloyds Banking Group Plc

Lloyds Banking Group Plc (LLOY) is a high street London based lender, offering a wide variety of banking and non-banking services primarily in the UK. Its services portfolio consists of current and savings accounts, credit and debit cards, short and long-term loans, unsecured loans, mortgages, protection, investment products, motor finance, bonds and syndicated loans. They are also engaged in offering wealth management services, capital market services, foreign exchange, private equity and leasing services. The company shares are traded at the London Stock Exchange and a part of the FTSE 100 benchmark index.

Financial Results and Review – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
The company reported net interest income of £13,396 million for the year ending December 2018 as against £10,912 million in 2017 for the same period. The company’s total income declined to £22,091 million in FY2018 as compared to £34,237 million in FY2017. There was a decrease of 35.5 per cent due to lower levels of client markets activity. In FY18, profit before tax surged by 13 per cent to £5,960 million as against £5,275 million reported last year. Profit attributable to equity holders climbed by 24.4% during FY18 to £4,302 million from £3,457 million in FY17, due to the decrease in the tax expense charges and improvement in the performance. The company’s basic earnings per share were 5.5 pence in FY2018 as compared to 4.4 pence in FY2017. Cash and balances at central banks dipped by 6.6 per cent to £54,663 million, down from £58,521 million a year ago. In 2018, reported total assets were down by £13,584 million to £797,598 million against £811,182 million reported last year. Total equity excluding minority interest stood at £49,925 million for FY18, up by 4.6 per cent against its FY17 reported total equity. In FY 18, the total ordinary dividend per share was reported at 3.21 pence.

Share Price Performance

 Daily Chart as at April-05-19, before the market close(Source: Thomson Reuters)
 
On 5th April 2019, at the time of writing (before the market close, GMT 11:53 AM), Lloyds BankingGroup Plc shares were trading at GBX 62.71, up by 0.14 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 69.69/GBX 49.52. The outstanding market capitalisation was around £44.85 billion with a dividend yield of 5.13 per cent.

Valuation Methodology

Conclusion
 
The company will have to remain watchful from political and economic uncertainties around the world. Rising interest rate can help the company to improve its margins but can decrease demand for loan. There is a strong support from the macroeconomic factors like improving employment rate and continuous improvement in GDP. The company has shown good financial performance in the current financial year. There had been an increase in both Top line and bottom-line performance.Based on the strong growth prospects of the company and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 62.62 (as on Apr-04-19) with single-digit upside potential based on 1.1x NTM Price to Book value (approx.) on FY19E Book value per share.
 
 
 
*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.7641 GBP
*The buy recommendation is also valid for the current price as covered in the report (as on April-05-19).
 

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser. Our publications are NOT a solicitation or recommendation to buy, sell or hold.