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Aveva offer could go higher

Some shareholders are reportedly pushing for a better deal and the share price is currently just above the offer price
November 8, 2022
  • Company under offer from Schneider Electric
  • Investments drag down operating margin

For Aveva’s (AVV) share price, the thing that matters is whether its largest external shareholders support the current bid from Schneider Electric. In August, Schneider Electric offered 3,100p a share for the 40 per cent of the business it didn’t already own. For the deal to go through, Aveva needs support from at least 75 per cent of external shareholders. Which means only 10 per cent of shareholders need to vote against it.

Some institutional investors, such as M&G and Canada-based Mawer Investment Management, think Aveva is undervalued, according to the Financial Times, and want Schneider to bid more. Hedge fund Davidson Kempner has also built up a 3.8 per cent stake in Aveva since the bid was put in. Between them, these investors own around 7 per cent.

Davidson Kempner bought even more shares on the day of the half-year results announcement, suggesting it has confidence it can squeeze more out of the deal.

In the six months to September, Aveva grew its annualised recurring revenue (ARR) by 11.6 per cent on an annual basis. ARR now makes up 70 per cent of total revenue.To accelerate this transition to the subscription model, Aveva has had to invest more in research and development. Management announced earlier this year it was bringing £20mn of cloud investment forward. This pushed Aveva's operating margin down significantly from 24.3 per cent to 13.2 per cent. Statutory costs rose 13 per cent to £629.1mn, and the business remains lossmaking.

The vote on Schneider's bid is on 17 November and for retail shareholders there could be an arbitrage opportunity. Given the shares are currently trading just above the offer price, the possibility deal value being increased is starting to be factored in. Hold.

Last IC View: Buy, 2,327p, 8 Jun 2022

AVEVA (AVV)    
ORD PRICE:3,141pMARKET VALUE:£9.5bn
TOUCH:3,141p - 3,145p12-MONTH HIGH:3,620pLOW: 1,800p
DIVIDEND YIELD:1.2%PE RATIO:na
NET ASSET VALUE:1,876p*NET DEBT:12%
Half-year to 30 SepTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2021481-80.3-27.113.0
2022552-89.1-26.513.0
% change+15+11-2-
Ex-div:17 Nov   
Payment:09 Dec   
*Includes goodwill and intangible assets of £6.04bn, or 2,000p a share