Scramble to buy Aveva shares

Having just feasted on £650 million in bounty from AVEVA Group long-awaited merger with a division of Schneider Electric, shareholders in the enlarged industrial software company continue to reap rewards today.

The shares surged 17% as Cambridge-based Aveva exceeded expectations with its first set of results as a merged company.

Upgrading its price target to 2,940p today, Numis Securities said that everything was "going in Aveva's direction" with the scale of opportunity "second to none".

The new-look Aveva has been created from a merger with Schneider's industrial software business in a deal that completed on March 1 following many years of discussion and speculation. The combination was structured as a reverse takeover as it has given the French energy group a 60% stake in Aveva.

As part of the deal process, Aveva handed £650 million or 1,015p a share to its shareholders in March. In addition, it has just maintained its final dividend at 27p a share, in line with the figure for last year.

That reflects a strong performance from the heritage Aveva business in today's results, with revenues and underlying earnings £10 million and £4 million ahead of Numis expectations despite the distraction of the large M&A deal.

The business is a specialist in engineering design and 3D visualisation technologies, but by combining with Schneider has significantly increased its presence in the key North American market and reduced its exposure to the cyclical upstream oil and gas end market.

On the Schneider side, which is a specialist in food, beverages and pharmaceuticals, Numis described the 2.5% underlying growth reported today as a solid performance.

Analyst David Toms said the mix of a stronger starting point and slightly higher growth and synergy forecasts had resulted in significant upgrades today, despite the pressure of currency headwinds.

He added: "Whilst there is clearly a lot of integration work to do, management is very much on the front foot, buoyed by strong trading and a clear sense of purpose on cost."

The new Numis target price is based on a projected 2019 enterprise value to net operating profit multiple of 35 times, compared with 30x currently. The projected dividend yield is 1.7%.

Investec is also reviewing its price target amid expectations that consensus profit forecasts will shift up 5% to reflect the results and cost savings outlook.

They said: "Aveva remains our key large cap sector pick due to the long-term forecast potential from Schneider and underlying recovery in Aveva's end markets."

While Aveva is exposed to some cyclical markets, the company is well placed to benefit from the trend towards the digitalisation of various industries. It pointed out that there were signs of recovery in oil and gas markets and in marine.

Aveva, which was established in 1967 as a breakaway from Cambridge University, was formerly known as CADCentre and listed on the London Stock Exchange in 1996. It changed its name to Aveva in 2001.

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