MIDAS SHARE TIPS UPDATE: Software firm Aveva gets a lockdown boost

By Joanne Hart, Financial Mail on Sunday

Updated:

Business have been talking about the wonders of technology for years but the Covid-19 pandemic has forced many to 'go digital' once and for all. 

As millions of employees moved to home working, companies have had to adapt – and fast. Along the way, they have discovered that much more can be achieved online than they ever dreamed possible. 

The trend plays into the hands of Aveva, a Cambridge-based software firm that helps companies use technology to build and operate their businesses more efficiently and cost-effectively. 

Growth: Aveva is a Cambridge-based software firm that helps companies use technology to build and operate their businesses more efficiently and cost-effectively

Growth: Aveva is a Cambridge-based software firm that helps companies use technology to build and operate their businesses more efficiently and cost-effectively

Midas looked at Aveva in 2011 when the shares were £16.25. Back then, the group specialised in technology that allowed customers to create detailed 3D designs on their computers. 

Models of complex structures, such as oil rigs or power stations, showed firms how the finished pieces would look and indicate that everything was in the right place from the start. 

The company still does this type of work but it has come a long way over the past nine years. 

Today, there are more than 16,000 customers worldwide, including toothpaste makers, beer brewers, drug manufacturers and miners, as well as electricity distributors and oil producers. 

The company is involved in new industries, too, such as renewable energy and data centres, and last year it joined the FTSE 100 index of Britain's biggest listed companies. 

As Aveva has grown, its shares have risen, closing last week at £40.81. Even at that level, most brokers believe the stock has further to go. 

Results for the year to March 31 showed revenues almost 9 per cent ahead at £834million and underlying profits up 22 per cent to £214million. The group paid a dividend of 44.5p, compared to 43p last year. The increase was small but, with dividends a rarity in today's markets, the payout is a mark of confidence in the future. 

Like Gresham House, Aveva has not furloughed any employees, no Covid-related redundancies have been made and chief executive, Craig Hayman, has not sought Government hand-outs. 

Hayman admits the business has been slightly hampered by the lockdown and growth may be affected by the global economic slowdown. But the group has taken swift steps to cut costs, largely by reducing travel-related expenses, and longer-term prospects are bright. 

Around 40 per cent of Aveva's revenues come from software that allows companies to design sites online but the rest is linked to technology that helps businesses to operate machinery and tools more efficiently. 

The group monitoring systems alert customers if a piece of kit is behaving oddly, for example, or if a tiny part will need maintenance in the near future. This type of technology dramatically reduces downtime, allowing firms to save costs and increase production. 

When panic ensued at the start of the lockdown, for instance, many Aveva customers were better able to cope with soaring orders for food, drink and healthcare products than they would otherwise have been. 

Analysts expect Aveva profits to fall slightly in the year to next March and forecast a maintained 44.5p dividend but the business is expected to rebound through 2021 and beyond.

Midas verdict: Shareholders who bought Aveva stock in 2011 have had a good run and, with the shares at £40.81, they may choose to bank some profit. But they should keep at least half their stock, as companies are increasingly keen on snapping up digital kit and Aveva is a pioneer in the field. 

Traded on: Main market Ticker: AVV Contact: aveva.com or 01223 556655 

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