Underlying figures positive for Aveva

Last month, Aveva (AVV) foreshadowed a 9 per cent rise in half-year revenues at constant currencies (CC). That includes an initial contribution from OSIsoft, a company previously backed by Japan’s Softbank (JP:9984), which was snapped up in a $5bn (£3.65bn) deal finalised in March.

The move not only enhanced Aveva’s capabilities in industrial data software, but it also radically expanded the Cambridge-based tech group’s balance sheet following a £3.5bn rights issue. The deal gives access to a wider range of industrial sectors, effectively reducing Aveva’s proportional exposure to energy markets. That means less reliance on a sector in which capital expenditure budgets are highly reactive to underlying commodity prices.

It’s still too early to determine how smoothly the integration of OSIsoft is progressing, but the impact on the top line is plain enough. Further down the income statement, Aveva booked a hefty statutory loss, primarily due to the amortisation of intangible assets, specifically combinations with OSIsoft and the Schneider Electric industrial software business. Strip out one-off effects and trading profits were 21 per cent to the good at £125m, or a rise of a third when the negative impact of currency translations is discounted.

In keeping with the zeitgeist, Aveva’s chief executive, Peter Herweck, believes global environment policy is working to the group’s benefit, evidenced by “the resumption of structural growth, driven by increased digitalisation and net zero projects, across a wide range of industry sectors”.

Given the level of intangibles, shareholders shouldn’t take fright at the odd non-cash impairment, although some uncertainty is reflected in a forward rating of 35 times consensus underlying earnings (not outlandish given the sector). Nevertheless, recurring revenues (CC) continue to tick up, an encouraging sign given the transformation under way. Long-term buy.

Last IC view: Buy, 4,265p, 05 Nov 2020