Broker snap: UBS upgrades AVEVA on valuation grounds

10th May 2012 10:26

Engineering software provider AVEVA was performing well on Thursday morning, helped by an upgrade by UBS from sell to neutral.The broker says that the stock is now trading at a 2012 EV/NOPAT multiple of 18.5 which "more reasonably balances the growth opportunities in Product Lifecycle Management (PLM) with the execution issues and margin drag that go with this expanding in this new market."Furthermore, UBS says that the premium to the PML sector ("29% on an EV/EBITDA basis over a simple average of Dassault, PTC and Autodesk") is warranted by the high returns on capital, cash-generation and recurring-revenue-based business model, as well as its exposure to attractive end-markets.AVEVA is due to report its full-year results on May 29th, in which UBS expects a positive outlook following the last trading update which noted a recovery in momentum in China and growing pipeline in Enterprise."We are modelling sales accelerating to an underlying 16% from 6% in H1, driven mainly by higher licence growth," the broker said.UBS's target price for AVEVA is left at 1,600p.Shares were trading 3.77% higher at 1,598p by 10:31.BC