Broker tips: Aveva, Compass, Petra Diamonds

The information technology group said it could benefit from a potentially sizeable currency gain for the full year due to weakness of sterling since the EU referendum.

The company added that trading had remained satisfactory in recent weeks. At the same time, Aveva announced the stepping down of chief executive Richard Longdon after three decades at the data and IT provider.

Longdon will be replaced by chief financial officer James Kidd at the end of 2016.

Kidd, who has been CFO since January 2011 and taking an increasing role in the commercial and operational development of the group in recent years, will be replaced in that role by Aveva's current head of finance, David Ward.

“In our view both James and David are very able individuals who will rise to the challenges of their new roles, and Richard's ongoing position with Aveva will ease the transition,” according to Numis.

Numis said its numbers suggest a 5% incremental benefit on a weaker pound for fiscal year 2017, but the broker will leave its forecasts unchanged for the time being.

“Our investment case remains that at some point the market backdrop will improve and Aveva will return to strong topline growth accompanied by significant margin expansion, and thus could deliver earnings 50% better than current levels (i.e. 90p + of earnings per share) which would put the shares on c.15x enterprise value: net operating profit after tax.”

Compass Group’s ‘buy’ rating was left unchanged and its target price was lifted to 1,645p from 1,425p by Canaccord Genuity on Friday.

Canaccord said it was upgrading its forecasts and target price on the catering company to reflect the benefits from a weaker sterling post-Brexit as about 90% of its earnings before interest and tax (EBIT) is generated outside the UK.

The broker has raised its earnings per share forecast by 4.9% to 61.7p for fiscal year 2016, by 12.5% to 71.7p for 2017 and by 12.3% to 76.9p for 2018.

“Compass generates only around 10-12% of EBIT in the UK and a 1% change in a basket of all its currencies has a £12m impact on EBIT,” Canaccord said.

“The major currency is the US$ and a five US cents move has an around £20m impact to full year EBIT; a five Euro cents move in the €:£ is worth around £7.5m.”

On Compass Group’s Capital Markets Day last week, Canaccord said it was “impressed by the quality of the management team, their cohesiveness and their enthusiasm to maintain and enhance their secular track record”.

Canaccord added that it believes Compass is the biggest player in contract catering with an estimated 9% share.

Petra Diamonds had its ‘buy’ rating and target price of 197p maintained on Friday by FinnCap after the miner announced a joint venture with Ekapa Mining.

Petra and Ekapa Mining plans to combine its operations in Kimberley, South Africa, including the Kimberley underground mine and the Kimberley and Ekapa tailings retreatment operations.

“This has allowed the old plants at Kimberley mine to be closed with all processing henceforth to use the new Combined Treatment Plant (CTP),” said FinnCap analyst Martin Potts.

The effective date of the joint venture agreement is 1 July.