The German lender left its target price for the FTSE 100 listed group at 2,800p, with the stock trading at 2,583p, down 2.7% or 72p on Friday’s close.
In a note to clients, Deutsche Bank’s analysts said: “With limited upside potential to our price target, we believe the risk/ reward is now rather more balanced and downgrade to Hold.”
They forecast Micro Focus reporting 7% single digit earnings per share (EPS) growth after full year 2020 - that is once the synergies from its transformational HP Enterprise software acquisition have largely been delivered - along with around a 4% dividend yield.
The analysts believe that a valuation of around 15 times full year 2018 EPS - in line with mature software and IT services peers - is roughly fair given a total shareholder return of about 11%, oﬀset by “the potential for further execution risk, lack of clarity around further future M&A and a lack of meaningful organic growth potential."
They concluded that applying that formula to their full year 2020 EPS estimate, and discounting by 8%, results in its 2,880p target price, which is only marginally ahead of the current share price.