Broker snap: AVEVA lifted by UBS upgrade after recent weakness

8th Jan 2014 16:25

Engineering software firm AVEVA saw its share price jump on Wednesday after an upgrade from 'neutral' to 'buy' by UBS, which said that the stock now looks "attractive" after a period of underperformance.AVEVA, which operates in the plant and marine industries, saw its share price sink sharply in November 2013 after it said first-half growth in the Enterprise Solutions business had been slower than expected due to issues with two clients.To make matters worse, there were a number of profit warnings across the oil services sector which dampened sentiment.Nevertheless, UBS said it was "impressed with the performance in the core Engineering & Design business in H1 14, which delivered over 10% like-for-like growth, despite a continued weak performance in Brazil. "We are not betting on a major recovery in Brazil and there is no doubt that the capex outlook in the Oil & Gas sector is more challenging now, but the proportion of spend that goes on software in the industry is still low, project lifecycles are long and AVEVA's own E3D product cycle looks promising."The bank said its valuation has long been its major reservation in relation to AVEVA, but the stock looks like better value now. What's more, the company is also on the bank's "M&A WatchList".UBS said: "Aveva's high recurring sales bias means a 2015E valuation multiple warranted. We acknowledge a slightly higher risk to growth in Oil & Gas, although Marine could also potentially start to improve over the next 12-18 months conversely. Our price target is now 2,550p, up from 2,300p previously [...] but now based on 2015 rather than 2014 estimates."AVEVA was trading 6.31% higher at 2,258p by the close of trade.BC