Aveva calms nerves, for now

In a brief statement a mere 11 lines long, Aveva signalled Monday that it has steadied the ship after a terrible final few months of 2014. However, shares in the engineering design software company have lost a third of their value since June - they had halved at one point in December - and the process of restoring confidence is ongoing.

"The board is pleased to report that the results for the financial year to 31 March 2015 are anticipated to be in line with market expectations," said Aveva. "The board believes that this result, which has been achieved in mixed market conditions, positively reflects the resilience of the underlying business model."

Aveva issued a surprise profits warning last September, flagging up adverse currency movements, timing of rental renewals, and softer demand in South America and parts of Asia. However, the share price has rallied by 30% from December lows of 1,255p.

Ahead of full-year results in a month's time, Aveva says it performed in line with reduced expectations in the year to 31 March 2015. Management is convinced this "positively reflects the resilience of the underlying business model" as it was achieved in mixed market conditions.

That's reassuring given that the final quarter is Aveva's most significant, with a number of key rental renewals due. Turmoil in the oil and gas industry - which accounts for about 45% of revenue - has also made things difficult. The company provides engineering software that allows companies to test designs. Unfortunately, as capex belts tighten and project volumes fall in response to lower oil prices, so does the need for Aveva's software.

As well as being exposed to oil and gas, Aveva works in marine and offshore, power, chemicals, mining and minerals, and pulp and paper - in February, it said the power division reported steady growth, while marine operations remained subdued.

Now forecasting revenue of £208 million and pre-tax profit of £61.5 million, Numis reckons annual results will be ahead of its revised guidance by £1 million. Back in November, weakness in South Korea and Brazil contributed to lower revenue, profit and earnings per share, at £85.9 million, £17.1 million and 16.75p respectively. Still, net cash grew by a fifth to £116 million, and the dividend rises by 10% to 5.5p. Says Numis:

Given the challenges in some end markets we think this is an excellent result and testament to the strength of AVEVA's products, customer relationships and staff. There is no additional detail in the statement, but from talking to management we understand that, reassuringly, the performance was "balanced' with no particularly exceptional deals.

Although Aveva fell slightly Monday, the shares still trade on just under 22 times forward earnings, a premium to the sector. Strip out £117 million of net cash, worth 183p, that drops to a more palatable 19 times.

Gareth Evans, an analyst at Westhouse Securities, believes this rating is deserved, however:

AVEVA is a truly world class business, trading in a very tough current environment. The market will stabilise, and is likely to recover at some point. Investors, in our view, will await further detail both on the stability now being seen, and on the plans for rebuilding, at the results on 19 May.

Maintaining its 'hold' recommendation, Panmure Gordon likes the look of the cash balance, the momentum at its plant design software Everything 3D, and the broker reckons recent restructuring will deliver further benefits, too. It thinks the shares are worth 1,907p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.