Aveva unfazed by second-half bias

The strong pound hurt Aveva Group's first quarter, and the timing of rental renewals means results will be more weighted to the second half than usual this year. Still, the engineering software firm says the underlying business is on track to match expectations, and the City seems unperturbed.

Analysts from Investec, Panmure Gordon and JPMorgan Cazenove all agree that with no material change in Aveva's performance and market conditions, strong profits should materialise in the second half of the year to March 2015.

Aveva points out that the first quarter is "seasonally the least significant for the group," but admits the timing of key global Engineering, Procurement and Construction (EPC) rental renewals has held back performance.

"Given the continued strengthening of the sterling, we tweak our profit forecasts down 1%," says Investec Securities, predicting 7% growth in 2015 pre-tax profit to £83.5 million, giving earnings per share of 96.4p, rising to £91.6 million and 106p the year after. But the broker remains positive as the second-half weighting is down to larger deals and customers consuming more. It reckons the shares are worth nearer 2,800p.

That puts Aveva shares on a 2015 price/earnings ratio of 21.4 times and enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of less than 14.

Strongly priced

Despite most analysts being upbeat about Aveva's outlook, Westhouse Securities analyst Gareth Evans said: "High-growth and high-margin technology companies should not be troubled by currency shifts."

"Aveva trades on a P/E of around 22 times full-year 2015 estimates at our target price (2,260p), a price at which investors should expect a degree of isolation from currency fluctuation."

Despite retaining his neutral stance due to the quality of the business, Evans notes that the company continues to be suffer from a number of risks; licence revenue profiles in Asia, uncertain growth profile of Enterprise Solutions and now currency.

However, JPMorgan analysts drew attention to the firm's "strong" cash balance, which stood at £129 million on 30 June. This is versus last year's £204 million cash prior to its £100 million special dividend and up from £118 million at the end of its fiscal year in March, explains the broker.

"Oil & Gas remained the principle growth driver, while growth in Power was steady and the Marine market showed the first signs of recovery with new orders higher than completed since 2008," they said.

On a 2015 P/E of 19 times its own forecasts compared with the global sector's consensus 17 times, JP Morgan reminded the market that revenues grew by 10% in 2014 to £237.3 million, adjusted pre-tax profit was up 11% to £78.3 million and EPS up 19% year-on-year to 89.1p.

Sharing the same sentiment, Panmure said the first-quarter update didn't disappoint, reflecting a "steady as she goes" IMS. They expect currency headwind to knock 4 to 5% off revenues, mainly in the first half, but add that they believe trading to be in line with expectations.

"Shares are not the cheapest, trading on an EV/EBITDA of 12.4 times and P/E of 22.3 times, but we are relaxed with our slightly below the midpoint estimates," they say.

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