Berenberg lowers target price on Aveva

Berenberg, which also reiterated its 'buy' rating on the stock, said during its fourth-quarter trading update, Aveva provided full-year 2023 guidance that was "materially below" consensus expectations.

"In our view, the disparity between the circa 3% FY23 top-line growth implied in the guidance and the 8.5% consensus figure is largely due to the fact that the company's business-model transition is likely to happen sooner than expected – we estimate that the transition will reduce FY23 growth by as much as 3.5ppt," said Berenberg.

The German bank said it had updated its estimates based on expectations for an acceleration in the pace of Aveva's model transition, resulting in lower revenue and profit margin estimates over the forecast period.

However, in its view, a successful model transition could make Aveva a more "resilient" and "profitable" business, with improved revenue visibility and a recurring revenue base, while the subscription delivery model could attract up to 50% value uplift.

"Previously, we valued Aveva on a 2.7% one-year forward FCF yield," said the analysts. However, Aveva will experience volatility in its near-term financials as it undergoes a business model transition and, as such, we now value Aveva on its FY26 FCF instead. We value AVEVA on a 2.8% FCF yield on FY26 FCF. We discount it to present day and apply a 25% discount (transition execution risk), and lower our price target to 2,800.0p"

Reporting by Iain Gilbert at Sharecast.com