Canaccord initiates coverage of Avast at 'buy'

The tech firm, which specialises in protection, privacy and performance software, debuted on the London market in 2018. On Tuesday, it revealed a forecast-beating 10.4% increase in first-quarter revenues, to $237m, and said it now expected full-year revenues to grow up the upper end of previous guidance, of between 6% and 8%.

In a note published on Wednesday, Canaccord said: “Most of the full-year 2021 sales upgrade resulted from good first-quarter trading. Full-year 2021 billings guidance remains at the low end of revenue guidance and weighted towards the second half, due to the positive impact of the first lockdown in the second quarter of 2020 and therefore a tough comparable.”

It continued: “Over 80% of group revenues are subscription agreements, which are typically paid in full upfront. The group enjoys the highest adjusted earnings before interest and tax margins in the UK IT sector, at over 50%, and this is reflected in the free cash generation at around 40 cents per share.”

However, it added that competition remained “considerable”, including from rivals such as McAfee, Symantec and Sophos.

Canaccord, which has a price target of 550.0p on the stock, concluded: “Our target implies a PE of around 21x for the 2021 full-year, versus the UK IT sector at around 33x. Avast has best-in-sector adjusted EBIT margins, versus the sector at around 14%, current free cash flow of 6% versus sector under 3%, and high recurring revenues (sector around 55%).

“Our valuation discount to the sector reflects Avast’s weaker top line forecast sales compound annual growth rate of around 6%, versus the sector at 10%, and existing strong competitive pressures.”

As at 1315 GMT, shares in Avast were off 1% at 474.2p.