Micro Focus International PLC - Solid Progress has been Made on the Key Integration & Operational Improvement Initiatives

Micro Focus International Plc (LON: MCRO) is a UK-based software & computer services provider company. The company provides software solutions which help to build and operate the enterprise.

Recent News
On 29^th May 2020, the Company said it had enlarged two new facilities, which will be used by MCRO to fully refinance its current Senior Secured Term Loan B due 2021 November and pay associated fees and expenses. A EUR 600 million senior secured term loan B facility was augmented from EUR 400 million and a USD 650 million facility enlarged from USD 400 million. The final pricing for the new five-year facilities is 4.25 per cent above LIBOR (London inter-bank offered rate) at an original issue discount of 2.5% on the US dollar denominated tranche and 4.5 per cent above EURIBOR (Euro Interbank Offered Rate) at an original issue discount of 3 per cent on the euro tranche.

Trading Update (as on 19^th May 2020)
The Group provided a trading update for the six months ended 30 April 2020, along with COVID-19 impact. For the first half of 2020, the Company expects to report revenue of around USD 1.45 billion, representing a decline of around 11% on a constant currency basis from the corresponding period of the last year. In April 2020, the Group witnessed a slowdown in customer buying behaviour. Led by the close management of variable and discretionary costs in addition to a decrease in certain costs as a direct result of Coronavirus, the impact of this revenue decrease on Adjusted EBITDA, after IFRS 16, has been largely mitigated. In the current period, the adjusted EBITDA margin stood at around 38% (after IFRS 16) and also reflecting the value towards the upper end of the anticipations. The Company has shown strong performance in cash flow, with operating cash balances of USD 0.63 billion and net debt (after IFRS 16) of USD 4.31 billion. Further, the Company has drawn down USD 175 million of the USD 500 million RCF (revolving credit facility). Whilst, the Group had total available liquidity of USD 1.1 billion as at 30 April 2020.

Share Price Performance
 
1-Year Chart as at May-29-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 29th May 2020, Micro Focus International PLC’s shares closed at GBX 406.70 and were down by 9.46 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,174.50/GBX 291.00.

From the technical standpoint, its shares were trading flat as compared to its short-term support level of 20-day simple moving average price. Momentum oscillator RSI 14 days on the chart is reflecting an oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price to Sales multiple of MCRO was 0.6x and the same multiple was lower as compared with the Software & Computer Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Trajectory Holds Upside Potential
The Group continues to implement the strategy and business model to deliver returns. There remained a significant pipeline of business opportunity for MCRO.

Conclusion
The above news is reflecting a positive outcome and demonstrates the cash-generative qualities of the recurring revenue model and the strength of the Micro Focus proposition. Despite the challenging environment, the Group's diversified and recurring revenue base and the highly cash generative business model signify solid foundations. Moreover, the business continuity plans have been thoroughly tested and are proving robust.

Over the course of 2 years (FY17 - FY19), the company’s revenue surged from USD 1,234.52 million in FY17 to USD 3,348.4 million in FY2019. Compounded annual growth rate (CAGR) stood at 64.69%.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 406.70 (as on 29th May 2020) with lower double-digit upside potential based on 2x NTM EV/Sales (approx.) on FY20E Sales (approx.).

AdEPT Technology Group PLC - Made Significant Strategic Acquisitions,while Maintaining a Robust Financial Position

AdEPT Technology Group PLC (LON: ADT) is a FTSE AIM All-Share Company, which independently provides managed services for unified communications, information technology, voice solutions and connectivity. 

Recent News
On 2^nd April 2020,the Company announced the appointment of N+1 Singer as Nominated Adviser and broker with immediate effect.

Trading Update (as on 2^nd April 2020)
The Group affirmed that all its employees were providing support remotely and it witnessed 85 per cent increase (compares to last few weeks) in call volumes. The turnover of the Company is nearly 45 per cent contributed through public sector while 55 per cent is contributed by the commercial sector. Further, the Group reported that Sales and EBITDA for FY20 were in line with expectations with an increase of 19 per cent and 13 per cent, respectively against the previous year. The Cash position at 31st March 2020 was GBP 12 million, and net debt was GBP 28 million (GBP 3 million below the market expectation).

Share Price Performance

1-Year Chart as at May-29-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 29th May 2020, AdEPT Technology Group PLC’s shares closed at GBX 221 and were up by 1.38 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 405.50/GBX 160.05.

From the technical standpoint, its shares were trading flat as compared to its short-term support level of 20-day simple moving average price.

Conclusion
The Group has expanded its geographic expansion into Yorkshire and delivered another year of strong performance in FY 2020.Further, to combat the disruption of Coronavirus mayhem, the Board decided to cancel the interim dividend of April 2020 and might suspend the final dividend of 2019 as well. Regarding revolving credit facility, the Group has maintained a healthy relationship with lenders and might consider the covenant waiver, if needed.  Furthermore, the Group is confident about its ability to survive the economic turmoil presented by Covid-19. Moreover, the business stays profitable and cash generative under the stress test scenario conducted by the Company. From the above scenario, the company’s prospects look good, and it could be an attractive opportunity to invest in the long term.

Based on the decent prospects, we have given a “Speculative Buy” recommendation at the closing price of GBX 221 (as on 29th May 2020).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy or Speculative Buy” recommendation is valid for the current price as covered in the report as on 1^st June 2020.

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