Cutting its stance on Micro Focus to ‘neutral’ from ‘buy’ the Swiss broker said:” Notwithstanding H1's good results and a $400m planned Return of Value, we see the upside for the shares as limited now.”
On Wednesday, the business software firm - which is currently reversing into US giant Hewlett Packard Enterprise Co.'s (NYSE:HPE) non-core software business - reported strong first-half results, with underlying earnings (EBITDA) up 22.4% to US$332.5mln (£260mln).
The group also said the transformational US$8.8bn HPE deal was on target to complete in the third quarter.
However one factor UBS highlighted in a client note today were the “risks of delays to the deal's closing and of disruption to sales execution within HPE Software before or around closing.”
The broker noted that Micro Focus is due to take on the assets at the start of HPE Software's fourth quarter which last year accounted for nearly 40% of the group’s full year licence sales and profits.
Meanwhile, UBS said, Micro Focus’s cash flow is likely to show the effects of “significant legal and advisory fees related to the deal ahead of its closing, and restructuring commitments are likely to be a feature thereafter.”
In reaction to the cautious comment, Micros Focus shares on the FTSE 100 index were down over 2%, or 52p at 2,183p in mid-morning trading.