Broker snap: UBS downgrades Aveva on valuation grounds

20th Feb 2012 10:17

UBS has downgraded its rating for Aveva on valuation grounds but has highlighted "many positives" for the FTSE 250 engineering information technology company.The broker has cut its recommendation from neutral to sell, saying that the stock's valuation looks high with the business's fundamentals "more than adequately discounted".Nevertheless that target price is lifted from 1,400p to 1,550p after UBS upped its 2013 estimates "given the better economic data of late together with a slightly more benign currency environment than previously modelled."As for the positives, UBS notes that Aveva enjoys the highest returns on capital in its coverage list and has an "inherently cash-generative business model". Furthermore, the broker thinks that a top-down view of end markets is attractive , "with customers in energy-related markets makingup 60% of revenues directly, and perhaps three-quarters or more including indirect sales". Meanwhile, emerging markets make up around 50% of sales.The stock seems to have been weighed down by the downgrade today, trading 2.59% lower at 1,655p in mid-morning trade.BC