Shares jump at MicroFocus over bid talk

By Graeme Dickson
Updated: 12:09 EDT, 27 April 2011

The FTSE picked up 51 points since last Wednesday to yesterday's close of 6069, primarily on upbeat results from corporate US and to some extent the UK.

Following on from Wednesday's 125 point rise, the FTSE slipped four points to 6018 on Thursday after German IFO business climate figures failed to impress, albeit corporate revenue and earnings results along with their outlooks were upbeat for both Intel and Apple leading investors to switch back into the tech sector and softening the modest downward pressure on the markets.

After the long Easter break it was a slow start to Tuesday, before momentum broke out to the upside with the FTSE finishing 51 points higher to close the day at 6069.

One notable observation was that the US dollar was starting to weaken amongst a basket of currencies including the pound, ahead of tonight's US Fed meeting.

Last week I mentioned that we were trading in a range of 5900-6100 and that seems to be holding up for now.

There are mixed signals given the state of the Greek, Irish, Spanish and Portuguese economies, rising interest rates in China to cool off an over-heated economy and austerity measures being taken by many countries, including the UK that can potentially curtail demand.

Yet corporate earnings, outside general retail, have generally been good so for now as the first quarter earnings season draws to an end, perhaps we might get one last squeeze to the upside based on further uplifting company news but otherwise we might see attention switch back to the macro-outlook.

Expect 6100 to provide strong resistance but if it can break through here then 6250-6400 might be on the cards. Otherwise look for support circa 5850-5900.

Big mover: How you can profit

The most notable rise in the FTSE 350 index over the shortened week came from IT solutions company MicroFocus (MCRO) which jumped 10.6 per cent since last Wednesday's close to finish yesterday at 360.8p.

Two weeks ago the company announced the departure of its CEO, Nigel Clifford, despite only being in the job for 11 months.

MicroFocus also announced in the previous months it was embarking on a share buy-back programme, much to the dismay of some observers who felt that it would be costly for the company given it has worked itself from being in a net cash position to that of US $40 million (£24.3 million) in net debt.

Yesterday, the company announced that it had received a non-binding preliminary approach that may or may not lead to a formal takeover, with no price given.

In the meantime, the company has suspended its buy-back programme while it considers its own response to the approach.

Stock Broker Panmure has increased its price target to 400p since the news of the approach.

Additionally, we are seeing a number of IT companies boosting its cash coffers following bumper earnings results, which could lead to a rise in M&A activity amongst the majors.

With MicroFocus's market capitalisation of £713 million, it could be viewed as relatively small-fry for a large company looking to expand its geographical or market presence.

If you are looking to buy for a takeover, then consider it as high risk as the approach could easily be withdrawn and the shares may likely return back to the 300-330p level – the price range before the expression of interest was declared.

Highlights from the FTSE 350 over the shortened include:

• On Thursday Autonomy (AU.), the company that processes unstructured data jumped 7.43 per cent to 1620p after it announced record first quarter earnings, driven by the popularity of cloud computing

• William Hill (WMH) improved 7.4 per cent to 213.3p helped by a surge in growth for its online betting services.

• Ukrainian iron ore pellet producer Ferrexpo (FXPO) moved 3.6 per cent higher to 481p on rumours that it could be subject to a bid from either Vale, Rio Tinto or Mittal

• On Tuesday UBS issued a note on British Airways and Iberia Airlines holding company International Consolidated Airlines (IAG), saying it was the top pick in the airlines sector, helping IAG add 4.5 per cent to finish at 229.6p

• Also yesterday fashion retailer Burberry (BRBY) added 1.57 per cent to close at 1291p despite rumours that it was being eyed by a Middle East investor for a possible takeover.