AVEVA’s shares up 10% on “in line with expectations” announcement

Apr 19, 2016 | Hot Topics

AVEVA today issued one of those uniquely British investor news releases that say little but try to reassure investors that the period ended March 31 was …. OK.  AVEVA said fiscal 2016 results were in line with expectations, though adjusted profit before tax was affected by year-end foreign exchange troubles including the weakening of the US dollar versus the British Pound in March. Since AVEVA doesn’t actually issue forecasts, let’s assume that the expectations it refers to are those of London City analysts, who had a consensus revenue of £203 million. Given the turmoil in the world of oil and gas, one of AVEVA’s major end-markets, that’s not bad — total revenue of £203 million is a year/year decline of around 3% in total revenue versus a decline of 12% from 2014 to 2015, and perhaps the start of a leveling off from the 5% year/year decline reported for the six months that ended in September of 2015.

Investors keep asking me about AVEVA’s exposure to upstream oil and gas, where the low price of oil has stalled many capital projects and deferred a lot of others. No projects means no work for the contractors that are AVEVA’s main clients. But when I speak with EPCs (the main consumers of AVEVA’s design, data management and operations solutions), they tell me that their order books are leveling out. Big contracts are hard to close but smaller projects, OPEX maintenance or CAPEX improvements, are coming in to keep the backlog of work at decent levels. We still don’t know if or when the price of oil will increase meaningfully, so EPCs continue to diversify their offerings, to new processes and technologies that improve the efficiency of existing production — something they need AVEVA’s help with. Combine all of that on the buying side with a strong recurring revenue base on the selling side, and you get today’s hinted-at results.

Investors are going to like this part of AVEVA’s announcement, too: “As we manage our business through the cycle we are focused on ensuring the most efficient allocation of resources, optimising our investment in future opportunities. As a consequence, we have recently implemented further cost saving initiatives. These initiatives were achieved at a one-off exceptional cost of £4.0m, part of which has been recognised in the year to 31 March 2016.”

During an investor conference call, AVEVA CEO Richard Longdon said that H2 was “very hard going” in oil and gas but that the company’s One AVEVA initiative is leading its sales teams to “fish for business outside our traditional areas” such as schematics, where Mr. Longdon feels AVEVA has caught up and surpassed the competition, and in new markets like food and beverage. He said that adoption of E3D accelerated in H2, a little bit ahead of plan, and is “building a head of steam” among the big global EPCs and their tier 2 partners. On the geo front, Mr. Longdon said that EMEA was stable, Brazil remains tough while North America was as expected. North East Asia was a little bit weaker than expected as shipyards continue to be affected as their offshore oil platform business stalls and the Chinese economy is slower than expected.

Major account renewals are occurring as expected, said CFO James Kidd. In fact, “there’s no evidence of major tail-off”, with a slight uptick in initial license fees in H2. Looking at 2016/2017, Mr. Longdon sees a plateaus –not getting worse, though still tough– in oil and gas and growth in new sectors, though he declined to quantify the growth in non-traditional markets on this call. He also sees AVEVA making headway with some of its newer products into existing accounts. Mr. Kidd summed it all up, saying that AVEVA expects a little bit of revenue growth in fiscal 2017.

Mr. Longdon said that the competitive situation remains largely unchanged but that there is a lot of interest in E3D among AVEVA’s traditional and competitor accounts.

“In line”, “new markets”, “no tail-off” and “cost saving” so far today have lead to a 10% increase in AVEVA’s share price (as of 8:30 AM New York time, which is 1:30 PM London time).

We’ll learn more on May 24, when full results are announced.