Stock of the week: Micro Focus International
Micro Focus International produces software products which help its customers, mostly large companies, to improve the efficiency of their IT systems and integrate new software applications with older ones.
The FTSE 250 constituent said this week that it has had a strong finish to its financial year and expects revenues and earnings to be at the top end of expectations. The shares have built up some good momentum, and with only 2% of its revenues in the UK the company may benefit if Brexit occurs and sterling weakens.
The shares trade on a 2017 price to earnings ratio of 13.9 times, which is attractive relative to the sector as a whole, while the prospective dividend yield of 2.7% is also better than average compared to peers. In addition, there is the longer term prospect of further returns of capital to shareholders once debt levels have reduced.
We recommend Micro Focus as a longer-term ‘buy’ for medium risk investors seeking a balance of growth and income due to the potential boost from recent acquisitions, the healthy growth in dividends and the group’s exposure to a wide geographic spread of regions.