AVEVA Group PLC

The software and computer service provider AVEVA Group Plc (LON: AVV) was incorporated in 1967 and is headquartered in Cambridge, United Kingdom. The company is involved in providing engineering, design and information management software through the geographical presence in the Asia Pacific, Americas and Europe and EMEA.

Dividend
The company intends to pay an interim dividend per share of 15.5 pence at a total cost of 25 million pounds(H1 FY19: 14.0 pence at a total cost of 22.5 million pounds). The interim dividend will be paid on 7^th February 2020 to investors on the registered date 10^th January 2020.

Financial Highlights (for the six months ended 30 September 2019, £million)

(Source: Interim Report, Company Website)

The company’s reported revenue for the first half of the financial year 2020 rose by 16.5% to GBP 391.9 millionagainst the corresponding period of the previous year, while recurring revenue for the current period increased by 42.1% to GBP 242.5 million. The organic revenue growth of 11.9 per cent at a constant currency rate, driven by the implementation of robust sales and benefited from preliminary contract renewals. The increased revenue was driven by good progress across all geographic regions.

The adjusted EBIT for the six months ended 30 September 2019 rose by 66.5% to GBP 90.6 millionas compared with the corresponding period of the last year, due to the revenue growth, higher gross margin and operational leverage. Adjusted EBIT margin was stated at 23.1% in H1 FY20, a surge of 690bps from the same period of the prior year.

The adjusted diluted earnings per share for the first half of 2020 surged by 65% to 43.31 penceas compared to the 26.25 pence in the first half of 2019, while reported diluted earnings per share were reported at 11.13 pence in the first half of 2020.

Share Price Performance

Daily Chart as at December-10-19, before the market closed (Source: Thomson Reuters)

On 10th December 2019, AVEVA Group PLC shares were trading at GBX 4,482 at the time of writing before the market close (at 01:39 PM GMT), down by 0.972% against the previous day closing price. Stock's 52 weeks High and Low are GBX 4,590/GBX 2,264. The company's stock beta stood at 1.43, reflecting the higher volatility as compared to the benchmark index.

The shares of the company have delivered a negative return of 0.88 per cent in the last week.

Conclusion
There are several uncertainties and potential risks which could have a material impact on the company’s long-term performance. Demand for the company’s products is decent, due to the stable conditions in key end markets and continuing digitalisation of the industrial world. The company's combined product offering is seeing increasing industry recognition. Against this backdrop, the benefits of integration and measures taken to drive progress, enhance revenue mix and increase margin will have a positive effect. Presently, the company’s stock is trading near a 52-week high, raising doubts at its upside potential at the current price level. The company's order pipeline is decent. Unfavourable changes in the foreign currency exchange rates will likely to increase the expenses of the company. The company’s success depends on its ability to provide high quality and reliable products and services. The company's products and services are characterized by rapid technological changes, which may affect its business operations.

Based on the above rationale, we have given a "WATCH" recommendation at the closing price of GBX 4,526 (as on 9th December 2019), with support from few catalysts needs to be evaluated at a later stage.

John Wood Group PLC

Aberdeen, Scotland-based John Wood Group Plc (LON: WG) is a multinational energy services’ company which is an international leader in the delivery of project, engineering and technical services to industrial and energy markets.

On 16th January 2020, the company will announce the trading update for the year ended 31 December 2019.

Dividend
In line with the progressive dividend policy, the interim dividend rose by 0.9 per cent to 11.4 cents per share.

Trading Update (as on 7^th November 2019)
The company announced its trading update for FY2019. Although operations are impacted by the slow macro environment, the company’s EBITDA remained in line with expectations. The cost reduction measures resulted in an improved financial performance. The formation of TCS has accelerated synergy delivery. The company’s cash flow remained the same as excepted. The company would be selling its nuclear business for $305 million and is expected to be done by Q1 FY2020. The company’s AS EAAA (Asset Solutions EAAA) is performing well in the Asia Pacific, Caspian and in the Middle East.

Share Price Performance

Daily Chart as at December-10-19, before the market closed (Source: Thomson Reuters)

On 10th December 2019, John Wood Group PLC shares were trading at GBX 322 at the time of writing before the market close (at 03:03 PM GMT), down by 1.17% against the previous day closing price. Stock's 52 weeks High and Low are GBX 648.60/GBX 314.00. The company's stock beta stood at 1.31, reflecting the higher volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
The company continues to expect strong full-year cash conversion after exceptional items of about 80-85% and growth in full-year adjusted EBITDA is expected to be in line with market expectations of 8%.The company is well-positioned for growth opportunities presented by Energy Security & Transition and Sustainable Infrastructure Development across Energy and the Built Environment Markets. The company is also well-positioned for revenue growth in key markets.

The company has many value-accretive projects in the pipeline with low risk and higher production.The company operates in multiple geographies due to which its profits can be impacted negatively due to the foreign exchange rate fluctuations. The ongoing trade war between the US and China has impacted the company’s performance. The company’s strategic focus is on higher-margin project management, operations & consulting business supported by the near-term priorities aligned to the emerging market trends and the strategy for sustainable cash generation, margin improvement & revenue growth. The group is confident of delivering revenue growth in the region of 5% in 2019, as 87% of 2019 forecasted revenues are delivered or secured and helped by around $4.3 billion of the order book to be delivered in 2019.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from USD 6,574 million in FY14 to USD 10,014 million in FY18. Compounded annual growth rate (CAGR) stood at 11.09 per cent.
Based on the healthy prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 322 (as on 10th December 2019, before the market close), with lower double-digit upside potential, based on 9.65x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 US$ = 0.758991 GBP.

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