AVEVA Group Plc

AVEVA Group (LON: AVV) is an FTSE 100 listed engineering and software company, which provides industrial software to shape a sustainable future. The Company connects people through a common cloud platform, AVEVA Connect.

On 25 May 2021, the Company will release its 2021 Annual results.

Rationale for Valuation – Buy at GBX 3,125.00

• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In H1 FY21, the debt/equity ratio was 0.04x.
• On the liquidity front, the current ratio was 1.49x in H1 FY21, which was higher than the industry median.
• AVEVA achieved double-digit revenue growth in H2 FY21, with a substantial scope of digital penetration in the industrial world and significant growth opportunities ahead.
• It entered into a sales agreement with Schneider Electric for three of its business.
• From a technical standpoint, 14-day RSI (27.06 levels) supports an upside potential.

Key Risks

• The performance can be significantly impacted by the principal risk of talent acquisition and retention, cloud strategy and SaaS security, Digital transformation agenda, sustainability, regulatory compliance, dependency on cyclical markets, disruptive technologies.
• The Company is also exposed to Covid-19 related risks, which may cause a delay in product development and increase the risk of contract losses.
• In addition, the Company operates in a competitive and complex technological environment, which requires continuous investment.

Recent News

On 12 May 2021, the Company stated that it has agreed to sell its Acquis Software, Termis Software and Water Loss Management Software businesses together to Schneider Electric. For this transaction, the aggregate consideration was £2.6 million and expected to complete by July 2021.

Trading Update (for the financial year ended 31 March 2021, as on 27 April 2021)

• On a year-on-year basis, the full-year revenue was flat and was also in line with the plan.
• The Company achieved strong growth in Subscription revenue, with increasing operating margins.
• On 19 March 2021, it completed the acquisition with OSIsoft, which will enhance the digital transformation.
• Overall, in H2 FY21, the Company achieved double-digit revenue growth on a standalone organic constant currency basis.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

In the future, it will make a smaller transaction of £2.6 million, related to the sale of its Acquis Software, Termis Software and Water Loss Management Software businesses. In FY21, the order pipeline was solid, supported by several large contract renewals and efficient digital demand generation. Further, the Company achieved solid growth in the second half of 2021. With the completion of the OSIsoft acquisition, the Company will enhance the ability to accelerate the digital transformation of the industrial world.

Meanwhile, AVEVA stayed in a robust financial position with a strong balance sheet and ongoing cash generation. The Board remains confident for FY21, with strong digitalisation in the industrial world and significant growth opportunities ahead. The stock made a 52-week low and high of GBX 2,916.76 and GBX 4,302.95, respectively.

Based on the solid growth in second-half revenue and support from the valuation as done using the above method, we have given a “BUY” stance on AVEVA Group at the current market price of GBX 3,125.00 (as on 13 May 2021 at 11:00 AM GMT), with lower double-digit upside potential based on 36.23x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

B&M European Value Retail SA

B&M European Value Retail SA (LON: BME) is a FTSE 100-listed general retailer Company and is a fast-growing variety goods value retailer. The Company’s stores are operating in the UK and France.

On 3 June 2021, the Company will announce the FY21 preliminary results.

Rationale for Valuation – Buy at GBX 551.60

• The Company has decent fundamental metrics as it has maintained a ROE above 20% in the last two periods.
• In H1 FY21, the profitability margins were higher than the industry median.
• In the last one year, the Company delivered a return of ~70.66% and delivered higher returns than the benchmark Index (FTSE 100 Index).
• On a trailing 12 months, Price/Earnings and EV/EBITDA multiples are currently lower than the Diversified Retail industry.
• BME has traded well with strong revenues and margins, and expects the 2021 revenue to be strong.
• From a technical standpoint, 200-day SMA (GBX 495.2) supports an upside potential.

Key Risks

• The business operations have been impacted due to the covid-19 crisis.
• The geopolitical changes and recession in the economy could hamper the Company's operations and affect the company's financial performance and operational stability.
• A slump in the consumer purchasing power due to massive lay-offs and furloughs could weigh on the demand side of the economics.

Q4 FY21 Trading Update (fourth-quarter performance to date for the financial year ending 27 March 2021, as on 4 March 2021)

• The revenues and margins for the period have remained strong, mainly in the B&M fascia business in the UK.
• As per the pre-IFRS 16 bases, the Company expects adjusted EBITDA for FY21 to be in the range of £590 million to £620 million.
• Strategically, it re-introduced the colleague discount for all NHS (National Health Service) workers throughout January 2021.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

The Company has traded well with strong revenues and margins. Further, in FY21, the Board expects the revenue to be strong. The guidance for FY21 Group adjusted EBITDA (on a pre-IFRS16 basis) narrowed to be within the range of £590-£620 million, with the voluntary payment of business rates amounting to around £80 million.

Previously, it has also delivered a strong financial performance in H1 FY21, with good visibility over current work-in-progress and pipeline opportunities. Overall, BME prospects appear to be decent, and it is a good opportunity to invest for the long term. Moreover, the Company’s expansion will support the growth of the business and improve efficiency. The stock made a 52-week low and high of GBX 297.89 and GBX 612.00, respectively.

Based on the strong revenue growth and support from the valuation as done using the above method, we have given a “BUY” recommendation on B&M European Value Retail SA at the current price of GBX 551.60 (as on 13 May 2021 at 10:40 AM GMT) with a lower double-digit upside potential based on 19.65x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*All forecasted figures and Peers/Industry information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.