Richard Plackett, co-manager of the BlackRock UK Special Situations Fund (GB0005805022), explains why he likes engineering software company Aveva (AVV). Aveva is BlackRock UK Special Situations' fourth-largest holding, accounting for 3.4 per cent of assets.
Mr Plackett looks for high-quality growth companies that can grow significantly and sustainably over the long term, and are able to withstand volatility and uncertainty. When deciding whether to invest in a share he looks for attributes including good management, a strong market position, cash generation, a good long-term track record and a robust balance sheet.
A particularly good example of a company with a robust balance sheet is software engineer Aveva.
"I want companies that have net cash and no debt," he says. "In an ever-more competitive economic environment, the winners are pulling further away from the losers and the contrast between failure and success is only getting starker. A company must be able to demonstrate that it is financially solvent and in recent years, those companies that survived the financial crisis have continued to improve on their financial strength.
"Aveva is engaged in the development of plant design software for a variety of industries, including oil, gas and power. Its software is integral to the plant construction process. Originally a breakaway from Cambridge University, the group has continued to focus on research and development, widening the product suite to appeal to a wider audience. Newer products such as AvevaNET and Aveva Everything 3D will generate future revenue streams."
Investors Chronicle, meanwhile, rates Aveva's share as a hold on the grounds that: "The dividend yield is nothing special, while, even after striping out the hefty cash pile, the shares trade on a hardly cheap 20 times forecast earnings, leaving the group's decent growth profile looking factored in."
