European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Micro Focus International  / Event-Driven

<ul>
<li>Open Text agreed a 532p/share cash offer for legacy software, highly leveraged FTSE250 constituent, Micro Focus (98% premium, 2.3x EV/Fwd Revenues, 6.4x EV/Fwd EBITDA), taking advantage of target's downwards re-rating.</li>
<li>My TP based (5.6x EV/Fwd EBITDA based) is 350p, which reflects macro challenges. Although the offer from Open Text seems every generous, ROIC could reach low single teens.</li>
<li>Gross spread is 2.35% and the estimated annual return would be 4.38% assuming settlement by mid-February. Irrevocables amount to 16.62%, the lengthy part will be antitrust and FDI approvals. Long.</li>
</ul>


Open Text agreed a 532p/share cash offer for legacy software, highly leveraged FTSE250 constituent, Micro Focus (98% premium, 2.3x EV/Fwd Revenues, 6.4x EV/Fwd EBITDA), taking advantage of target's downwards re-rating.
My TP based (5.6x EV/Fwd EBITDA based) is 350p, which reflects macro challenges. Although the offer from Open Text seems every generous, ROIC could reach low single teens.
Gross spread is 2.35% and the estimated annual return would be 4.38% assuming settlement by mid-February. Irrevocables amount to 16.62%, the lengthy part will be antitrust and FDI approvals. Long.


Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Shanghai Stock Exchange Composite Index / Technical Analysis

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

Our outlook remains status quo: we are bullish and we believe the path of least resistance remains higher. In today’s report we highlight attractive Groups and stocks within Technology: Semiconductor, Mid-Cap, Semiconductor Equip., Large/Mid-Cap, Semiconductor Equip., Small-Cap, and Software, Internet.

Our outlook remains status quo: we are bullish and we believe the path of least resistance remains higher. In today’s report we highlight attractive Groups and stocks within Technology: Semiconductor, Mid-Cap, Semiconductor Equip., Large/Mid-Cap, Semiconductor Equip., Small-Cap, and Software, Internet.

U. S. Equity Strategy: Status Quo: Bullish Outlook Intact

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in our 1/24/20 and 1/30/20 Int’l Compass reports: we continue to believe this is a bull market until proven otherwise, and a “buy the dip” strategy remains warranted. In our February International Strategy, we highlight various themes which lead to our bullish outlook, and offer several attractive opportunities we are seeing in the global health care and technology sectors..

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in our 1/24/20 and 1/30/20 Int’l Compass reports: we continue to believe this is a bull market until proven otherwise, and a “buy the dip” strategy remains warranted. In our February International Strategy, we highlight various themes which lead to our bullish outlook, and offer several attractive opportunities we are seeing in the global health care and technology sectors..

Despite negative recent developments, we have remained steadfast in our belief that weakness in May has presented an attractive time to add exposure. In our June International Strategy, we highlight various themes which lead to this belief, along with areas of the market where we see actionable opportunities within our favorite Groups, spanning the Consumer Staples, Technology, Consumer Discretionary, Services, Health Care, and Financial Sectors.

Despite negative recent developments, we have remained steadfast in our belief that weakness in May has presented an attractive time to add exposure. In our June International Strategy, we highlight various themes which lead to this belief, along with areas of the market where we see actionable opportunities within our favorite Groups, spanning the Consumer Staples, Technology, Consumer Discretionary, Services, Health Care, and Financial Sectors.

Global Ex-U.S. Equity Strategy: Cautiously Optimistic Outlook Intact

Canada

Open Text Corporation provides intranet, extranet, and corporate portal solutions to organizations located throughout the world.  The Company's flagship product, Livelink is an off-the-shelf, enterprise scalable, collaborative application for companies that want to leverage their information and resources through intranets.

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Open Text Corp (OTEX CN)

Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story

Serial acquirer OTEX CN agreed a 98% premium all-cash offer for highly leveraged and stalling revenues MCRO LN, implying an £5.1 billion EV to...

Jesus Rodriguez Aguilar

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

Cracks are beginning to show, particularly in EM/China. Key support violations include the MSCI EM index below $52, the Shanghai Comp below 3500,...

Vermilion Research

U. S. Equity Strategy: Status Quo: Bullish Outlook Intact

Our outlook remains status quo: we are bullish and we believe the path of least resistance remains higher. In today’s report we highlight...

Vermilion Research

Global Equity Strategy: Buy the Dips

Despite recent weakness across global markets, our weight of the evidence approach continues to lead us to the same conclusions as we posited in...

Vermilion Research

Global Ex-U.S. Equity Strategy: Cautiously Optimistic Outlook Intact

Despite negative recent developments, we have remained steadfast in our belief that weakness in May has presented an attractive time to add...

Vermilion Research

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