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Aveva is caught between two worlds

The software company swung to a loss as two medium-sized deals slipped into the second half
Aveva is caught between two worlds
  • The industrial software group swung to a loss but will pay a half-year dividend nonetheless
  • The $5bn (£3.8bn) OSISoft deal is on track to complete in late 2020 or early 2021
IC TIP: Buy at 4,265p

It is not easy to crystalise the investment case for a company that operates in the ever expanding universe of tech, but is also caught in the more tumultuous world of oil and gas. It means that industrial software group Aveva (AVV) has not been able to escape the volatility of one of its key end markets in 2020.

As such, the group moved into the red in the first half with a £23m loss from operations, compared with a £25.5m profit in the same period last year. Management credited this in part to two medium-sized deals slipping into the second half. But there are more than just timing issues at play. The group's energy segment accounts for 40 per cent of revenues, but falling oil demand associated with the Covid-19 crisis led to oil companies reducing capital expenditure. Although prices have staged something of a comeback, it is far from certain whether upstream budgets will recover in the months ahead.  

UBS expects revenues of £769m for the March 2021 full year, compared with £834m in 2020, with diluted EPS of 99.1p compared with 108.2p in FY2020. 

The group noted that its $5bn (£3.8bn) acquisition of US peer OSISoft is expected to complete between December 2020 and February 2021. The deal would make Aveva the largest listed software company in the UK. But Aveva did make some progress on its own steam through the half, with recurring revenues moving up to 64 per cent of total sales, compared with 62 per cent in the same period last year. Management was also confident on the order pipeline for the second half, which should be supported by a higher volume of contract renewals, although the energy sector remains a cause for concern. Buy. 

AVEVA (AVV)    
ORD PRICE:4,265pMARKET VALUE:£6.9bn
TOUCH:4,254-4,265p12-MONTH HIGH:5,315pLOW: 2,846p
DIVIDEND YIELD:0.9%PE RATIO:222
NET ASSET VALUE:1,158p*NET DEBT:1%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201939224.011.215.5
2020333-24.2-12.615.5
% change-15---
Ex-div:7 Jan   
Payment:5 Feb   
*Includes intangible assets of £1.8bn or 1,089p a share

Last IC View: Buy, 4,195p, 9 Jun 2020