Investec disappointed by surprise profit warning from Aveva

12th Sep 2014 09:49

Investec has placed its 'buy' recommendation for Aveva under review after a gloomy trading statement from the engineering software firm, with the broker saying it will have to re-base its earnings forecasts.Aveva's share price had dropped nearly 23% by mid-morning after the company said that first-half revenues are expected to be around £84m-90m, compared with £108.5m the previous year. Investec as expecting a figure closer to £104m-110m.As well as the "material" expected impact from currency movements and the timing of certain rental renewals, as already announced, it said that a reorganisation of the sales force, mixed levels of customer activity and a reduction in demand was also a factor in the year-on-year sales decline."Aveva has announced a surprise profit warning, flagging not only previously announced factors (rental timing, FX) which are not a concern to us, but also indicating some underlying weakness in its core market, which is more worrying," said Investec analysts Julian Yates and Roger Phillips.While the company did not give guidance for the full year, the analysts estimate that operating profit estimates would have to be downgraded by around 15%.Aveva said it was reviewing its headcount growth plans and discretionary expenditure, which Yates and Phillips said was "sensible, but suggestive of market softness as opposed to a one-off".They said: "Today’s news is disappointing as we felt the strength of the business model would prevent such a surprise downgrade. However we still see the model as solid and do not see this downgrade as a start of a business heading into a downward spiral."The broker's 2,800p target price has been placed under review.The stock was down 22.6% at 1,679p by 10:52.