Industrial software and services provider Aveva (AVV) saw like-for-like revenues jump around 10% year-on-year in the first two months of its current financial year as the engineering industry embraces increased digitisation and automation.
Consensus estimates for the year to 31 March 2022 are calling for a 50% increase in revenues to £1.25 billion, bolstered by a full contribution from its OSIsoft acquisition, which was completed in March 2021. This implies adjusted earnings before interest, tax, depreciation and amortisation of £402 million, up 58%, according to the analyst forecasts.
Investors welcomed the firm update and sent the shares shooting towards the top of the FTSE 100 leaderboard. The stock was up more than 3% at £38.30 in morning trade.
FIVE-YEAR PLAN
Equally of note were new five-year financial targets published. The company, which is making a presentation to investors and investment analysts later today, has based its targets on organic constant currencies and assumes that the global economic outlook is ‘stable to moderately growing’ and that trends toward digitalisation continue at current rates.
Aveva’s new financial targets, which run through to the year to 31 March 2026, include organic revenue compound annual growth of circa 10%, with ‘at least’ $100 million of cost synergy benefits from OSISoft, recurring revenue of over 80% (versus 67.9% proforma total in March), an adjusted earnings before interest, tax, depreciation and amortisation margin of at least 35% (versus 29.7% proforma total in March) and over 100% conversion of net profit into free cash flow.
KEEPING THE PROGRESS GOING
The new, enlarged Aveva is already tracking in line with its 10% organic growth target, as illustrated by today’s update, so investors are likely to turn their attention to the company maintaining this trajectory through and after the integration process and with support from its sizeable cross-selling opportunities.
‘The group benefits from being more diversified post-OSISoft deal, including lessening its exposure to the oil & gas sector,’ said Megabuyte analyst Rob Warensjo. This has come down from around 40% of total revenue to about a third, according to the analyst.
‘Aveva’s targets for growing its recurring base and margins is aided by ongoing progress for both businesses pre-merger, while the bottom line will have the added kicker from cost synergies,’ Warensjo said.
